Finance Code Vol-1, Ch-2 PDF

CHAPTER-II Financial Appraisal Of Railway Projects 201- 202 General Principles 203 Scrutiny by Accounts officer 204-205- 206-207 Test-of Remunerativeness 208 - 209 Provision of Rolling Stock 210...

CHAPTER-II Financial Appraisal Of Railway Projects 201- 202 General Principles 203 Scrutiny by Accounts officer 204-205- 206-207 Test-of Remunerativeness 208 - 209 Provision of Rolling Stock 210 Scheme for change of traction 211-212- 213-214 Revenue estimate 215-217 Assessment of working expenses 218 Provision for depreciation 219 Normal Lives of assets 220,220A Technique of financial appraisal of projects, DPR for Technical and financial appraisal of projects 221-222 Accounting rate of return method 223-224 Pay back period method. 225 Discounted cash flow 226-227 Net present value (NPV) or Net Present Worth (NPW) 228 Annual Cash Flows 229-230- 231-232 Rate of return under D.C.F. 233 Residual Value 234 Alternative Schemes 235, 235A Economic Evaluation 236 - 237 Replacements and Renewals 238 Reconditioning 239 - 240 Scrapping, condemning and abandoning assets 241 - 242 Second hand value 243 Post-projects appraisal 244 - 247 New Lines 248 - 252 Open Line Works Annexures Annexure A Check list with detailed notes for guidance of zonal Railways and concerned branches in Railway Board's office, in the preparation of Project Estimates. Annexure B Sinking fund Payment Table Annexure C Interest formulas and tables for Discounted Cash flow techniques Annexure D Rate of return-using Discounted Cash Flow method. Annexure E Examples illustrating application of DCF techniques in the financial appraisal of  railway projects. Annexure F Economic evaluation of Railway investments Annexure G Examples illustrating the method of financial justification to be adopted in the replacement, reconditioning or abandonment of existing assets Annexure-H Examples, illustrating the determination of second hand value of assets. Annexure- I Economic Appraisal Framework for evaluation of railway project Annexure-J Proforma for submission of Detailed Project Report *****  CHAPTER II Financial Appraisal Of Railway Projects 201. General Principle -Indian Railways is part of infrastructure Ministry and hence substantial investments are to be made for augmentation of capacity and expansion of network which require large investment. Investment decisions are the most important decisions to be made. It is fundamental to railway system as a commercial undertaking that expenditure other than that wholly chargeable to Ordinary Revenue incurred on new assets or for improvement of existing assets should be financially justified and no expenditure should be incurred without sanction. Moreover these decisions are to be made by keeping long term perspective in mind and treating IR as a national asset. 202. As an exception to Para 201, while no financial justification as such need be given in the following cases, it should be seen that the scale of expenditure incurred is as economical as possible consistent with the extant orders, if any, on the subject:- a) when the expenditure is incurred on a statutory obligation; b) when the expenditure is unavoidable on considerations of safety; c) when the expenditure is incurred on passenger amenity* works; and d) when the expenditure is incurred on labour welfare works except residential buildings for which special rules are applicable. *(Authority Board’s letter no. 2023/F(X) II/10/1 dated 01/02/2023 ACS No1) Note - 1) When expenditure on any of the above items forms part of a scheme and is not essential independently of the scheme, the total cost of the scheme, inclusive of the cost of the above works, should be financially justified. 2) In the case of savings in engine days or wagon days or both by avoidance of or reduction in detentions to stock, etc., the financial justification should be worked out on the basis of increased locomotive or wagon, etc., utilization and consequent postponement of the purchase of new engines or wagons, etc., if such saving can be definitely secured, and not on the basis of the earning capacity of the stock saved. 3) Savings on a particular railway should not be taken into account if they mean a loss on another railway. In such cases, the interest of railways as a whole should be considered.  4) No credit should be given to a proposed scheme for a saving which can be achieved regardless of whether the proposed scheme is or is not embarked upon. 5) If flag stations are included in the new scheme, the cost of operating them should be taken into account as an item of expense in working out the financial justification of the scheme. 6) Where a number of works required in connection with and/or increasing the line or transhipment capacity have to be carried out on different stations of a section as part of a scheme, the financial justification should be worked out for the section as a whole, as it might be difficult to allocate anticipated savings to individual stations. 7) Expenditure on works required for meeting statutory obligations or on consideration of safety should be subjected to proper scrutiny to see if the proposal is the result of a fresh development not already covered by the existing rules, or for implementation of a new recommendation of the Standing Safety Committee (accepted by the competent authority) or any Commission of Enquiry set up by Government, as the case may be. 203. Scrutiny by Finance & Accounts Officer -The Finance & Accounts Officer in his position as the Financial Adviser to the Administration, should carefully scrutinize the justification for proposed expenditure with reference to the principles enunciated in this Chapter and other orders on the subject. Even in cases where the return on the investment is not the determining factor, it will be incumbent on him to examine and offer his advice on the general merits of the proposal in the spirit of a prudent individual spending his own money. 204. Test of remunerativeness: The net financial gain expected to accrue from a project be either by way of savings in expenditure or increase in net earnings (i.e. gross earnings less working expenses),or a combination of both. Except in case residential buildings, assisted sidings and rolling stock to which special rules are applicable, no proposal for fresh investment will be considered as financially justified unless it can be shown that the net gain expected to be realized as a result of the proposed outgo would after meeting the working expenses or average annual cost of service(see para217) yield a return of not less than 10 percent under DCF method on the initial estimated cost. (Authority:F(X)-II/2011/ROR/1 dated 05.10.2017) Note- 1) Interest during construction should be added to the cost (excluding that chargeable to Revenue) of the projects, the construction of which is likely to last for more than one year. 2) Depreciation should be calculated on the total cost of the scheme and not only on the portion chargeable to Capital, unless the contrary procedure can be justified in any particular case. However, depreciation as an element of working expense is to be ignored for assessing annual cash flows under the DCF Method (see para 228). 3) In the case of construction of bridges, maintenance charges should include, besides the Maintenance charges on the bridges proper. 4) The element of interest charges, vide item (d) of para-215, should be ignored in determining the average annual cost of service in the case of a new project, though it should otherwise be included for the purpose of working out the comparative cost of two or more alternative schemes. 205. Following is an illustrative list of the various types of investment proposals which must pass the prescribed test of financial remunerativeness: a) New Lines: - 1) Project oriented or ‘single purpose’. 2) General purpose. b) Line Capacity Works- 1) Gauge conversions. 2) Doublings. 3) Major Signalling Schemes i.e. Tokenless Block Working, Automatic Block Signalling, CTC, Route Relay Interlocking, KAVACH etc. 4) Lengthening of loops and/or provision of additional loops. 5) Crossing stations. 6) Strengthening of electric traction distribution system and/or major modifications to electric traction installations. c) Yard Remodelling and Terminal Facilities-  1) Marshalling yards. 2) Goods and passenger terminals. 3) Transhipment points. d) Telecommunication Works. e) Electrification and provision of Loco Sheds herefore f) Introduction of new services- Passenger trains, container services, etc. g) Workshops- 1) Production Units. 2) Repair Units. 206. It may sometimes be necessary to reject a more economical alternative, because of considerations on which it is difficult to put a precise money value. If on the strength of any such factor a proposal is adopted that is less economical than its alternatives, the reasons determining such a choice should be recorded in the report of the estimate containing such proposals. In those cases in which the reasons as recorded are not accepted by the Finance & Accounts Officer, the latter should offer his remarks in his certificate of verification of the estimate concerned, so that these remarks may be taken into consideration by the authority sanctioning the proposal. 207. In regard to works proposals which are intended to increase line capacity, detailed traffic surveys should be conducted by a team consisting of officers of requisite status and experience from the Commercial/Operating Department and the Finance & Accounts Department. Where the traffic survey is conducted along with an engineering survey (Reconnaisance, Preliminary Engineering or Final location), the traffic survey report should be prepared under the general guidance of the Leader of the Team who will be an officer of appropriate status from the Civil Engineering Department. 208. Provision of Rolling Stock –Investment proposals for purchase/manufacture of additional rolling stock are to be justified on the basis of a general increase in the level of traffic which may or may not require line capacity works being taken up at the same time for the anticipated level of traffic. Where a line capacity work is justified due to anticipated increase in traffic, and also in the case of proposals for new line construction, the initial cost estimate should, for the purpose of Project appraisal, invariably include the cost of the rolling stock and the financial return on the project should be measured with reference to the overall initial cost of the project including the cost of rolling stock. 209. A very substantial part of the capital employed on the Railways is represented by the investment in rolling stock. The assessment of rolling stock required for moving additional traffic is directly related to the targets for movement of freight traffic, commodity-wise as projected by the Planning Directorate of the Railway Board. For additional passenger coaches, the Planning Directorate makes a forecast of the rate of growth of passenger traffic over a specified plan period. This detailed exercise should take into account the existing and projected operating parameters and efficiency indices such as wagon turn-round, provision for ‘sickness’, requirements for busy season, etc. In all cases where a distinctly new type of rolling stock is proposed to be acquired or manufactured, a detailed financial appraisal should be made of the proposed investment to see that it yields the requisite financial return. 210. Scheme for change of traction –Projects connected with the electrification are best formulated on a long term basis after considering the relative claims of the various high density sections of the Railways for better traction. A thorough techno- economic appraisal should be made in respect of each of the various sections proposed to be taken up for change of traction. Wherever possible, priorities for taking up the scheme for change of traction should be determined on the basis of the relative financial return expected from the various alternative schemes. 211. Revenue estimate –The revenues expected from additional traffic whether on the existing line or on a new line should be very carefully estimated in the traffic survey report. The estimate of revenues should be worked out for each commodity and for the lead from its origin up to the point of termination of the traffic. It should be ensured, however, that in case line capacity works are required to be undertaken in the contiguous section or Railway system over which the additional traffic is expected to be moved, the initial cost estimate for the scheme takes into account the cost of such additional line capacity works over the entire lead of the traffic. 212. In the case of a ‘project-oriented’ new line, i. e., when a new railway line is proposed to be built to serve the needs of a specific project or industrial complex, the estimated revenue from the traffic which will move on the line should be assessed realistically in consultation with the authorities concerned with that specific project. It is, however, essential that the Traffic Survey Team also makes its own independent assessment of the likely traffic which the project is expected to generate, instead of placing complete reliance on the data furnished by the Project Authorities or, in the case of a public sector undertaking, the concerned Department of the Government. The traffic survey officers must deeply probe into the various stages of scheduling of the project; e. g. what commitments have been entered into by the Project Authorities and whether the progress in the execution of the project is adequate to justify any specific claim in respect of the anticipated traffic. While working out the additional revenue from the traffic expected to move on the new line over its entire lead, the Railway Administration should make a careful assessment of the line capacity works required or terminal or any other facilities to be developed on the contiguous section/Railway system to carry this traffic. As stated in Para- 211, if additional works are considered necessary, the scope and cost thereof should be defined and included in the main project estimate. In case it is considered that adequate line capacity exists in the contiguous section or Railway system so that the additional traffic on the new line can be carried throughout its lead on the Railway without any hindrance the Railway Administration should confirm that no additional works would be required to be undertaken anywhere on the system to carry this traffic. 213. This approach inevitably involves grouping of a number of works with a common (or complementary) objective, such as for movement of additional traffic by improving line capacity, or for avoidance of detention to trains through yards. ‘Group Justification’ in such cases should be worked out for the project as a whole in case the individual works cannot stand on their own and must necessarily be taken up as part of a single project. However, where each of the works is self-contained, selection of priorities after consideration of various alternatives should necessarily be done with a view to ‘sub-optimization’, i.e. to realise the optimum benefit for the project by substituting the less remunerative sub-works by those anticipated to improve the return further. 214. Before proposals are made out for new marshalling yards or major remodeling of existing marshalling yards or mechanisation of marshalling yards, goods terminals and transhipment yards, etc., a work study team should go into the actual working and suggest such improvements in operation as can be achieved even with the existing facilities. Additional facilities should be justified only after all the possibilities of improvement in working by optimum utilisation of the existing assets have been fully explored and evaluated. For line capacity works generally Master Charts should be prepared of the existing (optimum) capacity, the extent to which it is presently utilised, and the capacity expected to be available after the provision of the proposed facilities. The additional traffic beyond the optimum existing capacity of the section should only be reckoned for financial appraisal. 215. A. Assessment of Working expenses/Average Annual Cost of Service – The average annual cost of service of an asset is the sum of:  a) The average annual cost of operation; b) The average annual cost of maintenance and repairs of the assets; c) The annual depreciation charges (but see para 228);and d) Annual interest charges on the cost of the asset. Note.–In computing working expenses in financial evaluation of any capital expenditure proposal under D.C. F. technique, only items (a) and (b) above should be reckoned. 215 B. Average cost per unit of service -The average cost per unit of service is obtained by dividing the average annual cost of service by the total number of units of service rendered by the asset in a year. In comparing two assets on this basis, care must be taken to see that the number of units of service taken into account in both cases represent the actual number utilised or consumed. Units of service rendered by either of the assets in excess of the actual requirements should be ignored in computing the cost per unit of the asset. 216. For the purpose of assessment of the average annual cost of operation and maintenance, full use should be made of the traffic costing data relevant to the investment proposal under consideration. Correct application of the cost data and, in particular, assessment of the direct/variable and the indirect/fixed or semi-variable costs is very important in arriving at a realistic estimate of the working expenses in respect of the proposed scheme. 217. In applying the unit cost data for working out the cost of moving the additional anticipated traffic, it has to be considered whether it would be reasonable to adopt the ‘incremental cost’ approach or to take ‘fully distributed costs’ into account. Logically, it would be realistic to work on the basis of ‘incremental costs’ for any small increases in traffic and over the short run. In the long run, however, even the so-called fixed costs will vary, and the incremental or marginal costs may fail to cover such semi-variable expenses. On the other hand, it would be equally unreasonable to apply fully distributed costs in all cases while working out the financial implications of a line capacity work. A realistic (though somewhat conservative) approach would, therefore, be to adopt ‘long term variable costs’ (based on percentages given at the end of Annexure ‘A’ for each item of cost) which will ensure not only that projects are not thrown out because of the adoption of the ‘fully distributed costs’ but also that a project is considered as remunerative so long as it yields the requisite return after meeting the ‘long term variable costs’. 218. Provision for depreciation- Depreciation provision in respect of an asset will be equal to the annual payment to a Sinking Fund which, together with the interest thereon at such rates as may be prescribed by the Railway Board, when compounded annually, will provide the amount required for the replacement of the asset at the end of the normal life. The duration of the Sinking Fund payment will be determined by the ‘normal life’ of the asset, and the amount of the annual Sinking Fund payment will be ascertained by referring to the table reproduced as Annexure ‘B’ to this Chapter, which shows the annual amount payable at different rates of interest ranging from 2% to 8% (over periods extending up to 100 years). 219. Normal lives of assets– For the purpose of the annual Sinking Fund payment referred to in para 218, the normal life of the various classes of railway assets should be taken as in the table below (However, instructions issued from time to time from Board’s Office regarding Codal Life may also be referred to):- (i) CIVIL ENGINEERING ASSETS: S.No. Class of Assets Average life in years ROUTES A & B C(Sub) D E* 1. RAIL & FASTENTING etc. 1 Rail & Fastenings (a.1).Rails (60kg) 25 19 38 38 (a.2) Rails (52 kg) 20 15 30 30 (b). Wooden Sleepers 10 10 10 10 (c.1) Metal sleepers (Cast Iron 20 20 20 20 & Steel) (c.2) Fittings steel trough 10 10 10 10 (d). PSC Sleepers 35 35 40 40 (e). Elastic Fastenings (i) Elastic Rail clips 8 8 10 10 (ii). Rubber Pads (GRSP) 4 4 4 4 (iii) Rubber Pad (CGRSP) 8 8 8 8 (iv) Metal Liners 8 8 8 8 (v) GFN Liners 4 4 4 4 (f) Switches (f.1) Switches (52 kg) 4-6 4-5 8-10 8-10 (f.2) Switches (60 kg) 5-8 4-6 10-12 10-12 (f.3) Thick Web Switches 14-18 13-16 20-24 20-24 (g). Crossings 7-8 6-7 10-11 10-11 2 (A). MAJOR BRIDGES (a). Bridges work- Steel work 60 (b). Bridge Masonry 100 (c). Structures Steel 60 (d). Structure- masonry and 65 cement concrete (e). RCC Bridge Works 60 (f). Pre-stressed concrete- 40 Bridge work (B). MINOR BRIDGES (a). Bridges work-Steel work 60 (b). Bridge Masonry 100 (c). Structures Steel 60 (d). Structure- masonry and 65 cement concrete (e). RCC Bridge Works 60 (f). Pre-stressed concrete- 40 Bridge work 3. FOOT OVER BRIDGES (a). Bridges work-Steel work 60 (b). Bridge Masonry 100 (c). Structures Steel 60 (d). Structure- masonry and 65 cement concrete, (e). RCC Bridge Works 60 (f). Pre-stressed concrete- 40 Bridge work 4 TRACK MACHINE (All 15 Categories) *Service life as indicated in the table is general life/service life for track components. However, renewal/replacement will be subject to various criteria laid down in IRPWM about its condition. (ii) COMPUTERS AND OTHER IT SYSTEMS: S.No. Class of assets Average life in years 1(a) Servers and storage devices 8 (enterprise class) 1(b) Network active devices (Routers, 6 switches etc.) 1 (c) Network passive devices (Patch 10 panels, outlets, network cables) 1(d) UPSs (>/= 50 KVA), cooling 8 equipment (PACs, Chillers) Fire suppression systems for Data centers 2 (a) UPSS< 1KVA 4 2(b) UPS>1KVA, 0.3 should be considered as Polluted Zone. i) Cantilever Cantilever 45 assembly & assembly Insulators: All types of Composite 25 insulators ii) ATD 24 iii) Contact Wire (a) Silver 40 years/on the basis of Brazed/ERB condemning dia. whichever W is earlier (b)Continuou 45 years/ on the basis of s Cast(CC) condemning dia. whichever type is earlier (xiv) PSI Equipments (a) Substation's equipments (i) Power Transformer / 40 Auxiliary Transformers (ii) All types of cables 30 (iii) Fixed capacitor bank 20 (b) Control equipments (i) Circuit Breaker, panels, all 25 switchgear and protective circuits (ii) SCADA system 10 (xv) Transmission line equipments & components (i) 110KV/132 KV, ACSR 60 conductors / Earth wire / insulators / Tower fittings 12 Tower Wagons (both 4 40 wheeler, 8 wheeler & all types) C). Equipments required for replacement through Revenue S.No. Class of assets Average life in years 1 Electric Loco Equipment (i) Armature for Traction Motor 15 (ii) Stator for Traction Motor 18 (iii) Commutator for Traction 15 Motor (iv) Auxiliary Motor 18 (v) Arno Converter 18 (vi) Blower Impeller/Casing 10 (vii) Locomotive re-cabling 18 (viii) Power Cables 18 (ix) Control Cables 18 (x) Compressor with exhausters `10/15 complete recondition /replacement 2 AC Equipment (i) Compressor ACCEL/ CARRIER Deleted (ii) Sealed Compressor KCL make Deleted (iii) Sealed Compressor Deleted Maneurope make (iv) Compressor Motor (DC) Deleted (v) Compressor Motor (AC) Deleted (vi) Condenser Fan Motor (DC) Deleted (vii) Condenser Fan Motor (AC) Deleted (viii) Condenser Fan Motor (RMPU) 12 (ix) Evaporater Fan Motor (AC) Deleted (x) Evaporater Fan Motor (DC) Deleted (xi) Evaporater Fan Motor (RMPU) 12 (xii) Compressor (Scroll) 12 (xiii) Condenser fan 12 (xiv) Condenser Unit Deleted (xv) Condenser Unit (RMPU) 12 (xvi) Evaporater unit Deleted (xvii) Evaporater unit (RMPU) 12 (xviii) Mercury in glass thermostat Deleted (xix) Evaporator Blower Drum 12 (xx) Microprocessor Controller 12 3 TL/Power Equipment (i) 4.5/25 KW alternator regulator 12 (ii) Emergency 90 AH VRL (SMF) 4  Battery (iii) 120 AH VRLA (SMF) Battery 4.5 (iv) 290 AH starting L.MLA 4 Batteries for Power Car (v) 70 AH VRLA Batteries 4.5 (vi) Power Car power panel 15 (vii) Power panel (AC coaches) 15 (viii) Pre Cooling cum battery 12 charging transformer rectifier unit (ix) 50 KVA /60 KVA (750/415 V ) 15 transformer unit (x) 3 KVA 415/190 V transformer Deleted (xi) 15 KVA, 9KVA, 5KVA, 3KVA 15 coach transformer and control metering transformers (1KVA,500VA, 250VA, 200VA, 100VA) (xii) Water Raising Apparatus 5 (WRA) (xiii) Water Boiler for Pantry 5 (xiv) Hot Case for Pantry 5 (xv) Bottle Cooler cum deep 5 freezer (xvi) Ventilation Blower Motor for 12 Power Car (xvii) Radiator for Power car 15 (xviii) Radiator Motor for Power Car 15 (xix) Pump controller 12 (xx) I.V. Coupler 400A/500A 18 (IV) MECHANICAL ASSETS S.No. Class of assets Average life in years Machinery & Plant 1 Machine Tools like Lathes, 20 Planners, Drilling, Boring and Milling machines etc. 2 High Precision and special 20 purpose machines like wheels  Lathes etc. 3 Tool Room and Testing 15 Laboratory equipment 4 Foundry and Forge Equipment 20 5 Heat Treatment Equipment 20 6 EOT Cranes 36 7 Power Generation Machinery Deleted & Switches 8 General purpose light 15 machinery e.g. band saw, floor grinder etc. 9 Air Compressors 20 10 Other miscellaneous machines Deleted eg. Light cleaning machines, test equipment in loco sheds , workshops, depot & sick lines 11 (i) Construction Machinery Deleted equipment (ii). Track Maintenance equipment (a)Tamping, Ballast cleaning 20 and handling, DTS and relaying machines (b) Material handling 25 machines (c ) Rail Grinding Machines 15 12 Station machinery like 15 weighing machines etc. 13 Miscellaneous machinery and 10 equipment for hospital, offices etc. 14 Mechanical Weigh Bridges Deleted 15 Electronic in motion Weigh 12 Bridges 16 Wheel impact Load 12 detector(WILD) 17 Diesel Pumps 15 18 Welding equipment 10 19 Diesel Refrigeration Deleted equipment 20 Material handling equipment 10 like FLT, Lister trucks etc. 21 Traversers 25 22 Fuel Station Dispensation 10 Equipment 23 (i) Bulldozers and 20 (ii) Other earth moving Deleted equipment 24 Motor Boats 15 25 Hydraulic re-railing 16 equipments ROAD VEHICLES 26 Staff Cars including Jeeps 7 27 Light Motor Vehicles 10 years for Diesel and 15 28 Heavy Motor Vehicles years for Petrol as per norms 29 Tractors (IV) MECHANICAL ASSET ROLLING STOCK 30 Diesel Electric/ Hydraulic 36 Locomotives 30 Diesel Engine 18 31 Shunting Locomotives 36 32 Steam Locomotives 40 33 Boiler and Tender 20 34 Steam Cranes 30 35 Diesel Hydraulic Cranes 25 36 Steel Body Coaches including 25 DMUs / EMUs, Restaurant Cars etc. 37 Full Stainless Steel Body 30 Coaches including DMUs/EMUs, Restaurant Cars etc. 38 Light utilisation categories of 40 coaches (steel body) like inspection carriages etc. 39 IRS Coaches 30 40 Open Bogie wagons with air brakes and Casnub bogies (a) BOXN, BOY, BOBRN, BOBSN 35 years (subject to outcome of structural and financial justification to be conducted for extension beyond 30 years) (b) BOBYN 38 (C) Other open 30 wagons 41 Bogie tank wagons with air brakes and Casnub bogies (a) BTPN 45 years (subject to outcome of structural audit to be conducted for extension beyond 40 years) (b) Other tank wagons 40 42 All other types of Bogie wagons with air brakes and Casnub bogies (a) BCN 40 years(subject to outcome of structural audit and financial justification to be conducted for extension beyond 35 years) (b) All other wagons 35 43 Open Wagons with vacuum Deleted brakes and UIC bogies 44 Other Wagons with vacuum Deleted brakes and UIC bogies 45 4- wheeler wagons (open and Deleted covered) 46 4 – wheeler tank wagons Deleted (with plain bearings) 47 4- wheeler tank wagons (with Deleted roller bearings) Equipment/Sub assemblies of Diesel locos 48 Engine Block 18 49 Crank Shaft 18 50 Turbo Super Charger 12 51 Governor 18 52 ECC assembly with RA Gear 18 Box 53 Radiator Fan 16 54 Heat Exchangers including 10 radiator 55 Expressor/Compressor 16 56 Bogies with wheels 18 57 Traction Motor 18 58 Traction Generator/Alternator 18 59 All electrical rotating machines 18 above 5 HP on Diesel locos 60 Rectifiers 18 61 Traction Gear 18 62 Loco Batteries 4 63 Power Cables 18 64 Control Cables 18 65 Blowers 10 66 Armature for Traction Motor 18 67 Stator for Traction Motor 20 68 Control Equipments 18 Equipment/Sub assemblies of DMUs 69 Power Pack 16 70 Bogies with wheels 18 71 Traction Motor 18 72 Traction Generator/Alternator 18 73 All electrical rotating machines 18 above 5 HP on DMUs/Rail bus/Railcar 74 Rectifiers 18 75 Heat Exchangers 10 76 Batteries 4 77 Power Cables 18 78 Control Cables 18 79 Control Equipments 18 80 Hydraulic Transmission 16 Rehabilitation/Replacement (V) SIGNAL & TELECOMMUNICATION ASSETS (A) SIGNALLING SYSTEM S.No. Class of Routes Average life in years assets 1 Electrical/ Route-' A' Mechanical Route-‘C’/Sub Signalling Urban section System Big Yard (more than or 25 equal to 200 routes) on all Routes 2 Electronic For all routes 20 years or based on interlocking obsolescence 3 (i) Electronic Signalling system like 20 years or based on Axle Counter, ATP, AFTC, IPS obsolescence etc 3(ii) Kavach (Automatic Train 15 Protection- ATP) (A) SIGNALLING EQUIPMENT Class of assets Life in Average life in years terms of Routes S.No operatio C/ E ns D& & A B Suburba D- E- n Spl Sp l Cranks and 50,000 1 2 2 1 4 4 Compensators 2 Lock Bar Clips 1,00,000 3 3 3 5 7 Facing Point Lock 3,00,000 3 8 8 8 15 15 with bolt detection 4 Mechanical Detectors 5,00,000 - 15 — 20 25 Circuit breakers 5,00,000 15 15 15 25 30 5 Lever locks - 7 7 7 12 15 6 EK Transmitter - 10 10 10 15 15 7 SM’s Slide Frame - 30 30 30 30 30 Electric Point Detector - 8 15 15 15 20 20 & Reversors 9 Signal Machines 1,50,000 - 10 - 20 20 Signal Wire - 10 3 3 3 3 3 Transmission 11 Point Machine 3,00,000 12 12 7 15 15 Plug-in relay (metal to 15,00,000 12(i) 25 28 25 28 30 metal) Plug in relays (metal 10,00,000 12(ii) 25 28 25 28 30 to carbon) Track Relay, QL1 and 12(iii) 10 10 10 10 10 QBCA1 relay Track Feed battery - 13 10 10 10 10 10 chargers 14(i) Transformers 30 30 30 30 30 Battery chargers, DG 14(ii) 10 10 10 10 10 Sets, inverters, ELD 15 (i) Batteries (VRLA) 4 4 4 4 4 15(ii) Batteries (LMLA) 5 5 5 5 5 16 Block Instruments 25 25 25 25 25 Cable 25 to 17 25 25 30 30 28 Block Instrument Electro 18 20 20 20 20 20 Mechanical/Electronic s 19 Electric Lifting Barrier 10 10 10 10 10 LED Signals (all aspect types) of 20 6 6 6 6 6 specification prior to version 2011 LED Signals (all aspect types) of 21 8 8 8 8 8 specification version 2011 or later (B) Telecommunication Equipments S.No. Class of Assets Average life in years 1 Microwave Equipments 12-15 years 2 MTRC Equipments/LTE 15 years 3 (i) Exchange and accessories 12-15 years including telephone equipment (ii)Telephone instruments IP/Non IP, 8 years Push button telephone, Magneto phones & FCT 4 Server based IP Exchanges 12 years 5 Underground cables (a) Quad PIJF 25 years (b) OFC 25 years 6 Overhead alignment 25 years 7 All other electronic/wireless items (i) 10 years for items with including OFC equipment RDSO approved specification (ii) 5 years for COTS items 8 OFC measuring equipment 8 years 9 Cell phones 3 years 10 Video Phone & WLL phone 8 years 11 Portable VSAT, Satellite phone 6 years 12 Walkie-Talkie sets/VHF (i) 6 years – WT (ii) 8 years – 25 W VHF (iii) 1year-Battery of WT for Drivers/Guards (iv) 2 years- Battery of WT for others 13 Datacom Equipments, Router, Modem, Switch (including Core/Aggregation/L‐2 switch), Media converter, Active system (viz. MIS systems including external storage systems and their connects) & Passive 8 years systems (viz. Networking equipments and cabling), Remote Diagnostics and Predictive maintenance system (NMS), Servers, Network video recorder &Video Conferencing System. 14 LED display Boards for passenger (i) 8 years for items with information system, true colour video RDSO approved specification cum train information display system (ii) 5 years for COTS items. and Public Address System (including IP based) 15 GPS based Digital Clocks (i) 8 years for items with RDSO approved specification (ii) 5 years for COTS items. 16 VOIP based Train Control 10 years Communication systems 17 Voice Logger for Control, auto (i) 8 years for items with phones, BSNL phones & LC gate RDSO approved specification telephone (ii) 6 years for COTS items. 18 Control Communication & Gate comm..Equipment 8 19 Telecom Battery Charges /SMPS Based power Supply 15 Equipment/Inverters 20 CCTV Camera (Fixed dome, PTZ and other type) and associated 8  equipment, video camera 21 Large format display monitor/ Video wall & LED/ LCD TV 8 22 Fax Earlier appearing as item 7 in RBA 25/2006. Shall not be replaced after its normal life. Note 1.: PCs and Secondary System may be deleted from list of Telecom assets and their life will be as indicated under (ii) Computer and Other IT systems Note 2. Para 219 ibid includes all correction slips circulated vide RBA circulars issued upto 12.8.2022 Note 3: The average life of the assets is detailed above however the actual replacement of all assets shall be based on the condition of the asset. 220. Technique of financial appraisal of projects- The following methods of appraisal of capital expenditure proposals are commonly used in industrial and commercial undertakings: a) Accounting rate of return, b) Pay back period, and c) Discounted Cash Flow. Of these, methods, (a) & (b) are employed without considering the time value of money. These are also known as the 'Financial statement' methods since the calculation involves data taken from and used essentially in the same form as in financial statements. When time is considered, the method employed for financial appraisal is the Discounted Cash Flow method, also called the 'Present value method', since the time value of money is an explicit consideration. 220 A. DPR for Technical and financial appraisal of projects- Detailed Project Report (DPR) for projects are to be prepared as per Board’s guidelines. Proforma for submission of Detailed Project Report is given in Annexure – ‘J’. 221. Accounting rate of return method - Under this method, the rate of return is worked out by arriving at a percentage ratio of the net gain (i. e., revenue less working expenses) over the initial anticipated investment of the project. Simply illustrated, it is proposed to construct a masonry building at a cost of Rs.1 lakh to accommodate an office which is now housed in a building at a rental of Rs.15,000 per annum. It will be necessary to ascertain (a) the average annual cost of maintenance and repairs of the proposed building and (b) its scrap value at the end of its normal life. If these are taken to be (say) Rs. 5,000 and Rs. 10,000 respectively, then the average annual cost of the proposed new building will be (a) Rs.5,000 plus (b) Rs. 801 being the annual sinking fund payments (at 3 per cent for 50 years which is equal to 0.0089 multiplied by Rs.1 lakh minus Rs.10,000), or Rs.5,801 in all. This will result in a saving of Rs. 9,199 (Rs.15,000 minus Rs. 5,801) in the annual rental charges that are presently being paid, or a net return of 9.2 percent on the investment of Rs.1 lakh. 222. A minor variant of the above illustration would be to take the average investment over the life of the asset at half the initial cost, viz., Rs.50,000 on the assumption that depreciation is written off in equal instalments over the life of the asset and the amount invested on the asset will decrease each year as funds are released through the effect of the depreciation charge. In that case the return on the average investment will work out to 18.4%. 223. Pay back period method -Since recoupment of the original capital invested in a project is an important consideration in appraising a capital investment, the method of working out the pay back period lays emphasis on the calculation of the time it takes to recoup the expenditure incurred on the project. In the table given below, the pay back period is 5 years, as the accumulation of the net cash flow, year by year equals the initial investment at the end of 5 years: Original Investment-Rs. 1,00,000 Net Cash Flows (i. e., net earnings or reduction in expenditure) : - Year Annual Cumulative Rs. Rs. 1 10,000 10,000 2 12,000 22,000 3 20,000 42,000 4 30,000 72,000 5 28,000 1,00,000 Under this method no attempt is made to assess the return on the capital invested. It only shows the length of time required to recoup the amount invested on the project, the assumption being that projects with short pay back period are better investment propositions than those with long pay back periods. Bare recoupment of the amount invested under the pay back period method would yield no return unless a suitable rate of interest return on the capital outstanding in each of the years involved is built into the calculation of the net cash flow. 224. The method of ranking projects, or project grading, on the basis of pay back period is of limited application as it can be employed only in situations where there is a strict time limit to the investment before the expiry of the useful life of the project. An example would be of a proposed investment in a project in a foreign country where the political stability can be foreseen only for a limited number of years, or in plant and machinery involving processes or products that are likely to be replaced by technological changes within a few years or a 'single purpose' new line where the known reserves of coal, iron ore, etc., are expected to be depleted/exhausted after a specific number of years. Though presently not in vogue on the Indian Railways, there is no bar to the application of the Pay Back Period method to evaluation of Railway Projects in consultation with the Financial Adviser and Chief Accounts Officer in the special circumstances illustrated in this Para. 225. Discounted Cash Flow -The accounting 'Rate of Return' (R.O.R.) Method commonly in use on the Railways does not take into account the time value of money. Also, the return on investment is worked out as at the time of completion of the project or at a single point of time (6th year or 11th year) and not through the entire useful life of the project. The R.O.R. method may, therefore, yield an incorrect result depending on the point of time selected for the purpose of project appraisal. A factor of fundamental importance to investment decisions and one which the R.O.R. method does not take into account is the timing of profits and cash flows that result from an investment and this factor is crucial to the Discounted Cash Flow Method of project appraisal. 226. Net Present Value (NPV) or Net Present Worth (NPW) -The concept of the time value of money which is basic to the Discounted Cash Flow Method is illustrated thus : Rs.100 receivable today is more than Rs.100 receivable a year hence, as Rs. 100 received today will earn interest or profits and shall accumulate to more than Rs. 100 in a year's time. Alternatively, Rs. 100 received today can be used to reduce borrowing thereby avoiding interest payments as well as reducing debts by Rs.100. Assuming that the Railways' cost of finance is its current dividend rate (say 10% per annum), Rs. 110 received a year hence should be worth Rs.100 today and Rs.100 which may be received in a year's time is worth about Rs. 91 today (actually it is worth Rs.90.91). Likewise, the present value of Rs.100 receivable 2 years hence is about Rs.82.64, and so on. In this way the cash flow for the project in any future year can be discounted to obtain the present value. 227. The NPV/NPW of a project is sum of the present values of the net cash flows for all the years of the project's economic life. The net cash flow in each year will be the expected net reduction in expenditure or increase in net earnings. The net cash flows are discounted to arrive at the NPV of a project by applying a pre- determined discount rate. For example, consider the following excerpts: TABLE - A From Col.2 under ‘Single payment’ Present value of Re. 1 Year 12% 15% 20% 1 0.893 0.870 0.833 2 0.797 0.756 0.694 3 0.712 0.657 0.579 4 0.635 0.572 0.482 5 0.567 0.498 0.402 TABLE-B From Col. 4 under 'Uniform series' Present Value of Re.1 received annually Year 12% 15% 20% 1 0.893 0.870 0.833 2 1.690 1.626 1.528 3 2.402 2.283 2.106 4 3.037 2.855 2.589 5 3.605 3.352 2.991 TABLE -B is derived by adding the data in TABLE -A. At 20% the 0.833 in TABLE-B is the same as the 0.833 in TABLE-A since the time involved is only one year. The 0.833 and the 0.694 for years 1 and 2 under 20% represent the 1.528 under TABLE-B at 20% in year 2. The 0.833, 0.694 and 0.579 in TABLE-A are added to form the 2.106 in TABLE-B. Thus, it can be seen that TABLE-B is essentially a summation of TABLE-A. With TABLE-B, present value calculations can be made more quickly if the cash inflows or out flows are constant. Instead of multiplying the same cash flows by the individual items of TABLE-A, one can multiply the annual cash flow only once by the sum of the data in TABLE-A which is conveniently arranged in TABLE-B. 228. Annual Cash Flows- It is important that the annual cash flows should be estimated on a realistic basis. By definition, the cash flow will take into account only the realisable revenue and cash expenditure or, in the case of expenditure reducing projects, the net reduction in cash expenditure. Purely accounting adjustments such as depreciation and other provisions are to be completely ignored. The reason is that cash flow is the foundation of the NPV and depreciation is an expense item not involving a flow of cash. It is implicit in the basic arithmetic of the D.C.F. Method of project appraisal that so long as the cash flows are adequate from year to year and the NPV computed at the requisite discount rate equals or exceeds the investment, the capital invested in the Project will remain intact. This is shown by a solved example below : Basic data- Initial investment- Rs. 4,00,000 Annual Cash Flow- Rs. 1,00,000 Life of the Project- 10 years DCF rate of return (say)- 21.4%(See Para 230) Year Capital in Net Payment Recovery Capital at the the surplus of interest of Capital end of the Year beginning of the year @ the year 21.41 % (1) (2) (3) (4) (5) (6) 1 4,00,000 1,00,000 85,652 14,348 3,85,652 2 3,85,652 1,00,000 82,580 17,420 3,68,232 3 3,68,232 1,00,000 78,919 21,081 3,47,151 4 3,47,151 1,00,000 74,335 25,665 3,21,486 5 3,21,486 1,00,000 68,840 31,160 2,90,326 6 2,90,326 1,00,000 62,168 37,832 2,52,494 7 2,52,494 1,00,000 54,067 45,933 2,06,561 8 2,06,561 1,00,000 44,231 55,769 1,50,792 9 1,50,792 1,00,000 32,289 67,711 83,081 10 83,081 1,00,000 17,790 82,210 871 3,99,129 The small margin of difference (Rs.871) is accounted by the error in interpolation of the rate of return. It will be seen that at the discount rate of 21.41%, the project has recovered the original cost in full (Col. 5), apart from paying off interest at the same rate. 229. Rate of return under D. C. F.-Two alternative methods can be used for assessing the viability of a project under the D. C. F. technique. For example, assuming an even cash flow of Rs.4,000 per annum over a period of 10 years in respect of a project where the original investment is estimated to be Rs.18,000, it will be observed from the following table that the discount factor of 4.5 (18,000 ÷ 4,000) occurs against the 10th year under the discount rate of 18%: Present value of the Re. 1 received annually Year 16% 18% 20% 8 4.344 4.078 3.837 9 4.607 4.303 4.031 10 4.833 4.494 4.192 11 5.029 4.656 4.327 In this case the rate of return under the D.C.F method for an even cash flow of Rs.4,000 per annum for an investment of Rs.18,000 will be about 18%. Since the D.C.F. return of 18% is more than the minimum acceptable rate of return (say 10%) , the project would be considered desirable from the financial point of' view. Under an alternative method, the minimum acceptable rate of return (say 10%) would be applied to calculate the NPV of the project. If the NPV is (zero or) positive, it would be financially acceptable, and if the NPV is negative, the project will not be financially acceptable. In judging the ranking of competing projects, under the first method, the D. C. F. rate of return would be used and whichever project gives the higher rate of return would be preferred. Under the second method, the competing projects will be ranked according to their NPV and whichever project gives a higher NPV at the minimum acceptable rate of return would be the preferred project. 230. Another illustration may be given of a case where the initial outgo of (say) Rs. 4,00,000 is incurred in one year and the project starts giving a net cash flow of Rs.1,00,000 per annum over 10 years thereafter. Discounted cash flow at various rates of interest would be as shown below where the cash flows are uniform throughout the project life:  10% 20% 25% Factor for 10th year 6.145 4.192 3.571 NPV for even cash flow of 6,14, 500 4,19,200 3,57,100 Re. 1 lakh per annum R.O.R. will be about 21.41% 231. The simple illustrations given above presume that the investment is completed in one year and the project starts yielding a return immediately thereafter. Where the investment is spread over a number of years, it is necessary to work out the value of the investment, by applying the relevant rate of interest, from the inception up to the point when the project is expected to be ready for operation, the rate of interest being the minimum acceptable rate of return of (say) 10%. In the illustration given in the preceding para, if the investment of Rs. 4,00,000 is assumed to have been spread over a period of three years including the year in which the project was completed, the total investment, inclusive of interest, up to the year of completion would be as shown below :- 0% 10% Year Interest Rs. Interest Rs. -2 1,00,000 1,21,000 -1 1,50,000 1,65,000 0 1,50,000 1,50,000 Total investment 4,00,000 4,36,000 In this case, if the net return over the life of the project of ten years assumed in the earlier illustration is constant amount of Rs.100,000, the return would be about 18% instead of 21.41 % worked out in Para 230. 232. A short write-up on the technique of working out the rate of return under the Discounted Cash Flow Method is at Annexure 'D'. Detailed examples of railway projects showing application of the D. C. F. technique are given in Annexure 'E'. 233. Residual Value -Each project will have an estimated life span at the end of which the various assets will be disposed of or put to other uses. The flow of funds created by the sale or disposal of the assets at the end of the life of the project should be estimated so that appropriate credit can be given to the project in the year in which the flow of funds is expected to occur by the sale or disposal of the assets. Since all the assets may not be discarded or sold at the same time, the cash flows resulting from residual values should be allocated to the years in which they are likely to be received. If some of the assets are to be taken out of service and disposed of before the termination of the project, the resultant cash flows must be included in the appropriate years. 234. Alternative Schemes - Equivalent Annual Cost - The criterion of choice between alternative schemes, each of which is capable of rendering the required service, is the principle of least cost in the long run. This approach is particularly applicable when the cash outflows under each competing project have sharply different time patterns. To obtain the annual cost, the outlays of the project are summarised into a single present worth amount and then spread over the years of the project life as an equal amount per year, which includes interest at a standard rate. By the same summarization and spreading for an alternate project, the two projects can be compared by reference to the per year figure for each. The comparison is usually of cost only, revenues being assumed as the same under either project. An illustration appears below : Year 0 1 2 3 4 Total. Project A : cash inflows (the same as for Project B) cash outflows (104) (5) (1 0) (1 5) (20) (154) Project B : cash inflows (the same as for Project A) cash outflows 10% (45) (30) (30) (30) (30) (165) Worth Factors 1.00.91.83.75.68.... Present Worth : Project A (104) (5) (8) (11) (14) (142) Project B (45) (27) (25) (22) (20) (139) *Equivalent Annual Cost : Project A.... (45) (45) (45) (45)... Project B... (44) (44) (44) (44)... *These annual amounts are determined by dividing the project present worth by the present worth of a four-year Re.1/ - per year annuity. This is the sum of the individual present worth factors.91,.83,.75,.68 which totals Rs 3.17. The above analysis shows that Project ‘B’ has the lower uniform annual cost, by a small margin, even though it shows a larger total outlay. The reason for this is that the project outlays take place later under Project 'B', which reduces its present worth and lowers its annual cost including interest, relative to Project 'A'. 235. Economic Evaluation. -As a commercial undertaking, it is incumbent on the Railways to ensure that a proper financial return is earned from every investment subject to the exceptions given in Para 202. At the same time it has to be borne in mind that the Railways are an important instrument of economic and industrial development of backward areas not connected by a reliable transport network. In the case of major projects such as new line constructions, or change of traction from diesel to electric, the benefits likely to be realised by the economy as a whole are assessed by the Economic Adviser to the Railway Board. The principles on which economic evaluation of Railway investments should be carried out as distinct from working out a financial return to the Railways, are indicated in the note (together with an illustration) at Annexure 'F’. 235A. A detailed economic appraisal framework is given in Annexure- ‘I’. 236. Replacements and Renewals -The proposal for replacement of an existing asset (whether involving improvement or otherwise) should be examined critically with a view to seeing whether it would not be possible to avoid, or, at least, postpone such replacement by suitable repairing or reconditioning the asset at a cost that could be comparatively justified financially. In all cases in which it is considered necessary to replace an asset, instead of reconditioning it, it should be examined whether the estimated average annual cost of service (i. e. cost of operation and maintenance, sinking fund payment to the depreciation fund, and the interest on the cost of the asset), or the estimated average cost per unit of service of the new asset is likely to be less than that of the old asset after reconditioning. Except when renewals or replacements are inevitable, the expenditure chargeable to the Depreciation Reserve Fund, should be financially justified in the same manner as any other expenditure of capital nature. 237. Where a replacement is proposed on grounds of economy in operation and maintenance costs, the estimate therefore should justify the o u t g o on the proposed replacement by showing that the average annual cost of service or the average cost per unit of service, that will be rendered by the new asset, is less than that of the existing asset. Note -The above two paragraphs will not apply to cases of casual or programme renewals, not involving any improvement. 238. Reconditioning – When an as asset is repaired at a comparatively high cost in preference to its being replaced, it is referred to as being ‘reconditioned’. The cost of such reconditioning is chargeable to Ordinary Repairs and Maintenance. It may be noted that reconditioning is different from routine repair. For all reconditioning works, detailed estimates should be prepared. 239. Scrapping, condemning and abandoning assets - An asset may be scrapped, condemned or abandoned without replacement, when the service rendered by it is no longer required. If the service rendered by it is still necessary and if it is proposed to make other arrangements for such service, it should be definitely established that it is more economical to scrap, condemn or abandon the existing asset and obtain the required service from the new arrangement than to continue to obtain the required service from the existing asset. Here also the relative economics of the two proposals should be assessed on the basis of the average annual cost of service or the average cost per unit of service, as the case may be. Note -The preparation of financial justification as contemplated in this paragraph is not necessary for condemning rolling stock in the following cases:- i) Overaged stock due to be replaced by virtue of their age but condemned before replacement. ii) Under or overage stock involved in accidents and certified to be irrepairable (not included under the category of “beyond economical repairs”). iii) Non I.R.S. type coaches and wagons of inherently weak design proposed to be condemned on condition basis whether under or overage. 240. Examples are given in Annexure ‘G’ illustrating the method of financial justification to be adopted in the case of replacement, reconditioning or abandonment of existing assets. The data used in the illustrations are hypothetical and the methods adopted are not to be regarded as exhaustive or as precluding the use of other methods that may be found to be more appropriate. The D.C.F. method can be conveniently used in some cases as has been shown in Example (1) of Annexure ‘G’. 241. Second-hand Value- The second-hand value of an asset is what it is presently worth and has often to be distinguished from its scrap value. For purposes of financial justification of transfer, purchase or sales, the second-hand value of assets may, except in certain cases (e.g. rails, locomotives, boilers, etc.) where separate rules have been prescribed for the determination of the second-hand value, be determined as provided below :- i) The first cost of an asset (based on which its second-hand value has to be computed) should be taken as the value of a similar asset at present day prices and not the value actually paid for the asset when it was originally purchased. ii) The second-hand value of an asset that does not depreciate is the same as the first cost. iii) The second-hand value of a depreciating asset should be so appraised that the average annual cost of service or the average cost per unit of service, as the case may be, of the second-hand asset is equal to that of the same or similar asset while new. 242. Examples illustrating the application of the principles enunciated in the preceding paragraph are given in Annexure ‘H’. 243. Post project appraisal - It is important that an investment proposal is subjected to proper financial appraisal not only before it is a sanctioned but also a certain period of time after the project has been in operation. Whether the financial return anticipated from a project at the estimate stage is actually realised in due course or not should be determined by conducting a ‘Productivity test’ in respect of all major works. For any such comparison to be meaningful and realistic, it is important that the computation of the actual additional earnings and working expenses is done on the same lines as at the project estimate stage. As commercial profitability is liable to be affected by escalation in prices or any other extraneous development, in order to have a more reliable and accurate evaluation wherever relevant, a comparison in terms of physical units of throughput may be carried out. Such a comparison should preferably be done class-wise in the case of passenger traffic and commodity-wise in the case of goods traffic. The post project appraisal should be conducted by the user department in consultation with Engineering and Finance. Further, all projects sanctioned on the basis of ROR, should be subjected to mid term review at the time of every revision of estimated cost. Such review shall consist of review of both existing projection in current scenario, revised estimated cost and consequential change in ROR. Financial feasibility of project need be assessed and  commented by General Managers of Zonal Railway. 244. New Lines - In respect of each new line opened for traffic, the railway administration should submit to the Railway Board a statement, showing the financial results of its working in Form No. 244 shown below. The statement should reach the Railway Board not later than the 31st December following the financial year to which it refers and should be accompanied by a covering memorandum in which brief explanations should be given of important variations between the actual realisation and the estimated revenue, together with a Note by the General Manager indicating how the actual net cash flow compares with what was estimated at the project stage. The Note should also bring out the probable traffic prospects of the line in the sixth and the eleventh year of opening. Statement showing Financial Results of working of New Branch Lines. Form No.F.244 Railway ---------------------------------- Name of branch ----------------------------------- Length in Kilometers---------------------- Gauge ---------------Opened on-------------------- Year Cost on 31st Earnings of Actual expenditure of Net earning of March plus Branch line branch assessed on branch proper calculated interest proper the basis of (Col.3-4) during costing/financial construction. data applied to the traffic over the branch line Working expenses (excluding depreciation & interest) As Actuals As Actuals As Actuals As Actua originally originally originally originally ls Estimated Estimated Estimated Estimated (1) (2) (3) (4) (5) Actuals after opening - - 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year 8th year 9th year 10th yr and so on upto 30 years Main line Additional net Total net Return Remark Additional Additional earnings (Col.6- earnings on s revenue minus expenses 7). (Col.5+8) Total any loss due to calculated on the cost short circuiting basis of costing/ Col.9 or diversion of financial data x traffic. applied to traffic 100 from the existing line to branch line and vice-versa Working expenses Col.2 (excluding Depreciation & interest) As Actual As Actual As Actual As Actual originally s originally s originally s originally s estimate estimate estimate estimate d d d d 6 7 8 9 9A 10 Foot notes to Form No. F. 244.- i) Actuals will be actuals to end of the year for which accounts have been closed, and fresh estimates for the years thereafter. ii) Special steps taken in the course of the year - (a) To develop the traffic revenue- (b) To reduce the expenses (i) (i) (ii) (ii) (iii) (iii) (iv) (iv)  iii) Probable future development of traffic and possibility of the line paying its way (short note)— Head of Traffic Department Head of Account Deportment Note- The traffic data required to be maintained vide Para 245 should be used for costing purposes so as to arrive at the expenditure of the Branch proper and of traffic moving from the existing line to the Branch line and vice versa. 245. The following statistics should be maintained from year to year in respect of all new lines opened for traffic and submitted to the Railway Board by l st August of each year :- i) a) Passenger revenue from traffic local to the branch line. b) Other coaching revenue from traffic local to the branch line. ii) a) Passenger revenue from traffic from the new line to the existing lines and vice versa. b) Other coaching revenue from traffic from the new line to the existing lines and vice versa. iii) a) Tonnage of goods traffic local to the branch line. b) Tonnage of goods traffic inter-changed with the existing lines iv) a) Revenue from goods traffic local to the branch line. b) Revenue from goods traffic interchanged with the existing lines. 246. The following instructions should be followed in preparing the statement F-244 :- i) Column 3 should indicate the revenue of the branch from all traffic originating therein, whether local or foreign (Proportion due to the branch) and all traffic received from the main line. ii) Columns 4 & 5 should be worked out on the basis of the costing/financial data under Group 'C' (see Annexure 'A') in respect of the traffic referred to in (i) above. iii) The additional or new traffic interchanged to be shown in column 6 should include only that portion of the traffic received by the main line from the new branch and of the traffic from the main line to the branch, which arises solely from the construction of the new branch line. In the absence of actual figures of additional traffic interchanged with the existing lines, a reasonably approximate figure may be adopted. In the case of chord line short-circuiting  a previously existing route, figures relating to cross traffic which would have been carried by the previously existing route, if the chord line had not been constructed, may be omitted from this statement and a proportionate reduction in the working expenses on the branch line made. Column 7 should be worked out on the basis of costing financial data under group ‘C’ (See Annexure 'A' and para 217). 247. The statements vide Paras 244 & 245 should be submitted for every completed financial year after the date of opening of the new line for a period of 11 years. The actuals for the years to end of which accounts have been closed and the cash flows for the remaining years of the assumed project life should be arrived at on the basis of the best possible estimation. The entire series of net cash flows should then be discounted to arrive at the rate of return compared to the originally expected return. In case the actual cash flows shown in statement F.244 indicate a fair degree of proximity to the original estimates, it may be assumed that the cash flows for the remaining years of the project life will also follow the same trend unless definite foreknowledge is available to the contrary. If a review of the annual cash flows for a sufficiently long period (say 5 to 7 years) indicates that the cash flows have settled down, within limits, to a 'uniform' series, the Railway Board may decide that submission of the Statements F. 244 & F. 245 for future years in the case of a particular new line be discontinued. 248. Open Line Works – For the purpose of applying the productivity tests to open line works, i.e. works undertaken with the definite object of increasing revenue or reducing expenditure and to which such tests can be applied within five to seven years of their completion, selection will be made out of these works sanctioned (and/or charged to Capital) on grounds of remunerativeness. All such works costing over Rs. 1 crore will invariably be subjected to this test. The result of the test should be reported by the General Managers to the Railway Board. As stated earlier in the preceding para in the case of New Lines, the actual net cash inflow for each year, to end of the 5th/7th year from the date of commissioning should be recorded for each open line work to be subjected to the productivity test, and the cash flows for the rest of the project life assessed on the basis of the latest estimate. The whole series of net cash flow should then be discounted to arrive at the rate of return compared to the return originally expected. 249. In addition to productivity test to be conducted as provided in paragraph 248 above, a productivity review should also be undertaken in respect of selected works costing over Rs. 50 lakhs which are estimated to fetch some return, even though not the return prescribed for a work being classified as remunerative. The methodology to be followed will be the same as prescribed in the preceding para in respect of works costing over Rs.1 crore each. Note-Justification for works or part of a scheme should show the probable period ,that will elapse between the completion of the works and the time when the productivity review can be made. This note equally applies to paragraph 248. 250. The fact that productivity tests are to be applied to a particular work should be intimated to the authorities entrusted with its execution as also to the Finance and Audit officers. In respect of all such selected works, the Financial Adviser and Chief Accounts Officer should a l s o keep such statistics as would be necessary for the verification of the tests conducted by executive, in addition to those usually available. 251. In order to ensure that a work selected either by the Railway Board or by the General Manager for the application of productivity tests or review is not lost sight of, Executive Officers and Finance Officers should maintain a register containing a list showing the following particulars :- i) Reference to sanction of the estimate. ii) Brief particulars of work selected for the application of productivity tests or review. iii) Total estimated expenditure. iv) Nature and extent of "productivity" claimed in the estimate. v) When the test or review is to be applied. vi) Brief remarks about the results of the test or review. This list should be reviewed half-yearly and timely action taken to apply the test or review to all works due for examination during each half-year. 252. When, in due course, the tests or reviews are actually applied or carried out, the Financial Adviser and Chief Accounts Officer after verifying should submit a report embodying the results of the test or review to the General Manager. In case of works sanctioned by the Railway Board, the General Manager will submit the Financial Adviser and Chief Accounts Officer's report to the Railway Board with his own comments. The object of these reports is not only to furnish information about results actually achieved to the authority who sanctioned the expenditure but also to serve as a lesson for the future. *****  ANNEXURE -A (Please refer to Annexure I & J also) (Ref. paras 216 and 217) Check List With Detailed Notes For Guidance Of Zonal Railways And Concerned Branches In Railway Board's Office, In The Preparation Of Project Estimates The procedures and methodology to be adopted for a proper financial appraisal of projects are laid down in the Engineering Code and in the Report of the Committee on Technique of Financial Appraisal of Railway Projects as well as the circulars issued by the Railway Board from time to time. 2. Some of the survey reports submitted by the Zonal Railways were scrutinised by the Cost Analysis Cell of the Board's office. It was found that the estimates of working expenses have been substantially understated owing to many important elements such as empty haulage, number of marshallings, tare tonne kilometres, etc., not having been taken into account by the Zonal Railways. In some cases, instead of applying the unit costs the Railways have adopted the operating ratio to estimate the working expenses. The operating ratio is only an end figure and should not, therefore, be used for estimating working expenses. Further, the revenues depend on the product mix, i. e., the proportion of the high- rated, low-rated commodities or short lead or long-lead traffic and the estimate made thereof should be reasonably correct. 3. In order to ensure that no item of cost is excluded and no item of cost is over stated / understated, a check list, together with detailed notes, has been prepared for the guidance of the Zonal Railways and the concerned staff of the Railway Board's office (E.A. Branch F (X) Branch and Planning Branch). The more common mistakes and deficiencies noted in the calculations at present can be avoided if the check list is adhered to. 4. Unit costs are worked out for the broad and metre gauge systems of each of the Zonal Railways under 3 main groups- Group ‘A’ – Gives the unit costs applicable for all- traction movement. These unit costs include the direct costs as well as the element of overheads. Group 'B' - Gives unit costs for particular facets, as cost per shunting engine  hour, train engine hour, engine hour etc., for each traction. The unit costs in this group include the element of overheads. Group 'C'- Gives unit costs traction-wise. The wagon provision costs which include the element of repairs and maintenance, interest and depreciation, are separately shown. The overheads and the central charges are separately indicated. Unit costs of line haul are worked out separately for through trains and van and shunting trains under both groups 'A' and 'C'. All the unit costs are furnished separately under 3 heads - Working Expenses, Depreciation and Interest, so that the rate of return can be worked out both under the conventional method or D.C.F. technique. Group 'A' and Group 'C' costs are more widely used for assessing the costs of specific flows or streams of traffic. If the traction is known, the Group 'C' costs are adopted. If the traction of line haul is not defined or specific, then all- traction figures in Group 'A' are adopted. Group 'C' costs are much more refined and specific and, therefore, by taking note of special characteristics of operation the costs may be estimated with a higher degree of accuracy. Group 'B' costs are generally used for estimating the savings in monetary terms of engine hours, wagon hours and shunting engine hours. 5. Study has been made to estimate broadly the variability of different items of expenditure with appropriate units of performance. The results of the study are summarised at the end of this Annexure. 6. In estimating the expenditure in respect of additional traffic the variability factors mentioned above should be adopted to arrive at the long- term variable costs. In estimating the expenditure in respect of existing traffic, however, the fully distributed cost should be used. 7. Check list -The check list and procedures/steps for estimating the costs are detailed below :- Existing line Project line Existing Additional Existing Additional traffic traffic traffic traffic Freight Traffic- a) Tonnage loaded under specific b) commodities Tonnage unloaded under c) specific commodities Tonnage transhipped d) Tonnage repacked e) Tonnage of cross f) traffic Load of specific g) traffic Net tonne h) kilometres Loaded i) wagon kms. j) Empty wagon kms. k) Tare tonne 1) Kilometres Gross m) tonne Kilometres n) Engine Kilometres o) Train Kilometres p) No. and name of marshalling yards. No. and name of Repacking points. No. and name of Transhipment points Coaching/Passenger traffic- a) No. of Passengers- (i) Originating (ii) incoming b) Train Kilometres c) Engine Kilometres d) Vehicle Kilometres. 8. The Traffic Survey Report should give in detail the quantum of existing freight traffic (originating, terminating, transhipped, cross, etc.) under important commodity groups, the pattern of movement (origin and destination of the important flows), the quantum assessed, both in terms of tonnes and in terms of B.G. or M.G.4-wheeler wagons. The additional traffic should also be assessed in a similar fashion. In case any difficulty is experienced in converting the tonnes into wagons, the figures of average starting loads (separately for originating and transhipped traffic) shown in the monthly wagon loading statements may be adopted. Otherwise, the minimum weight condition as per goods tariff may be taken into account. 9. Empty haulage should be carefully calculated taking into account the outward and inward traffic commodity-wise and equipment-wise. The source of empties should also be indicated so that the empty haulage may be reasonably assessed. Otherwise, following norms may be adopted :-  BFRs, Oil tanks, BOBs , BOI and Special types, etc. (B.G. and M.G.) 100% POL Traffic, iron ore traffic, industrial raw material to steel plants, etc.(B.G. & M.G.) 100% Coal--Average B. G. 80 % Other commodities -B.G. 23 % M. G. (including coal) 33 % The correct estimate of empty haulage is very essential as this element appears in the calculation of – i) Wagon kilometres, ii) Gross tonne kilometres, iii) Engine kilometres, iv) Train kilometres, v) Wagon days, vi) Engine days, and vii) Number of marshalling yards. 10. Marshalling yards. --The survey report should specify the Inward, outward and cross traffic dealt with at different marshalling yards on the project line and the existing main line. This should be separately assessed for the existing traffic and the additional traffic. We should take into account not only the loaded journeys but also the empty journeys of wagons. In case traffic bypasses the marshalling yard, detention to stock for carriage and wagons/train examination for engine changing and crew changing should be taken into account. There are at least 2 marshalling yards for any movement irrespective of distance. The study reveals frequency of marshalling as indicated below: Broad Gauge Metre Gauge 1-40 Kms. 2.00 2.00 41-120 Kms. 3.00 3.00 121-240 Kms. 3.50 3.50 241-500 Kms. 4.00 4.00 501-800 Kms. 4.50 5.00 801-1300 Kms. 5.00 6.50 1301 and above 5.50 7.50 The above is only for wagons moving in piece-meal. Where the wagons are moving in a specific stream of Traffic, the actual marshalling requirements should be assessed on the concerned route. 11. Terminal:- Documentation charges are calculated on the basis of one invoice per 4-wheeler wagon in the case of wagon load traffic and one invoice for 0.54 tonne of smalls traffic. In the case of train load movement, one invoice may be adopted for 10 four-wheeler wagons. There are cases under which one-end terminal documentation is performed by the staff employed by the consignee or the consignor. In those cases, this element of cost for one end may be omitted. Two terminal costs should be taken, one for the originating end and the other for the destination end. 12. A special study has been made in the case of coal traffic. The coal terminal costs at the originating end for 1970-71 are given below :- Cost Per Wagon Rail Termina Trip haul between base Other Total way l Cost yard and collieries costs originating Terminal costs Rs. Rs. Rs. Rs. Central 15.485 8.046 24.649 48.180 Eastern 17.436 8.307 19.870 45.613 South Central 8.605 4.918 17.210 30.733 South Eastern 19.118 11.101 19.514 49.733 Total Indian Railways (B.G.) 17.202 8.803 19.917 45.922 At the destination end, the average unit costs would apply even in the case of coal traffic. 13. Wagon days - It is not correct to adopt wagon kilometres per wagon day for assessing the wagon requirements. To illustrate this point, the example of a short distance traffic of lead of 40 kilometres with an empty return ratio of 100% may be considered. The wagon requirement on the basis of wagon kilometres per wagon day would work out to only one wagon day. It is common knowledge that it would take at least 3 days for the wagon to be loaded, unloaded and brought back to the loading point for the subsequent loading, if the detention to stock at the originating end, terminating end, transit time and contiguous marshalling yards were properly taken into account. In the case of fairly long-lead traffic, the wagon user index may be adopted. 14. Engine kilometres - After calculating the train kilometres on the basis of the permissible load (in terms of BOX or 4-wheelers and the gross load) on various sections, the engine kilometres should be assessed on the basis of - i) Single engine operation or multiple engine operation, ii) Banking engines over gradient sections; and iii) Light engines. Figures of engine kilometres per engine day used for goods traffic are readily available in the Annual Reports and Statistical Pamphlets for each traction. It should be possible to work out engine days required on this basis after giving due allowance for the element of repairs and spares. For example, 4 million tonnes of iron ore are to be moved over a section 100 kms. in length. The movement will be in BOX wagons with load of 55 tonnes each. The section is heavily graded and the trains will run triple headed (diesel traction) with a load of 40 BOX’s plus an additional banking engine over a section of 8 kms. Estimates of engine km/engine days will be as follows :- 1) No. of trains each way 1,818 2) Train kms. both ways with 100% empty return (1818 x 2 x 100) 3,63,600 3) Assisting required and Assisting not required Engine km. 7,27,200 4) Banking engine kms. (1818 x 2 x 8) 29,088 5) Light engine kms. (say 6% of train kms.) 21,816 1,41,704 6) Bare-engine days required @ say 360 km. per engine day in use 3172 (goods). 7) Total engine days required (add 16% for POH, spares, etc.) 3680 or 10 engines The nature of movement should also be taken into account, i. e., whether the traffic is carried by shunting and van train or by through trains. The cost characteristics are different and separate unit costs are available. 15. Fuel and lubrication costs are calculated on the basis of GTKms. Other  operating costs (line haul) are calculated on the basis of train kilometres/engine kilometres. 16. Track and signalling line haul -This is calculated on the basis of GTKms. The average unit costs are not adopted for estimating the cost under track and signalling. A slight refinement is made taking into account the variability of this item of expenditure with reference to GTKms. The variability studies reveal that 50% of this expenditure is variable with GTKms. The average unit costs applicable to B.G. or M. G. systems of an individual Railway are adjusted by taking into account the specific density of traffic on the route or sections involved and the average density of the Zonal Railway system. As an illustration, a section with an average density of 18,000 tonnes per day as against the average density of 12,000 tonnes per day on the gauge may be considered. If the average unit cost for the gauge is Rs. 6.00 per 1000 GTKms., then the average unit cost for the section will be = Rs.3 + ⌠ Rs.3 x 12000 ⌡ or Rs.5 per 1000G.T.Kms. ⌠ 18000 ⌡ Particulars of Service for which unit costs of freight services are worked out on Indian Railways (See para 4 of Annexure A). Line No. Particulars GROUP A 1. Terminal Cost per Tonne-Smalls. 2. Terminal Cost per Tonne-Full Loads. 3. Total Terminal Cost per Wagon-Full Loads. 4. Repacking Cost of smalls per tonne per handling. 5. Transhipment Cost at Break of Gauge per tonne per 6. transhipment. Marshalling Cost per Wagon per yard handled. 7. Line Haul Cost -per train kilometre. 8. Line Haul Cost-per Wagon kilometre (Rev.) 9. Line Haul Cost-per net tonne kilometre (Pay Load). 10. Line Haul Cost-per Wagon kilometre (Carrying Unit). (i) Through Goods Trains. 11. Line haul Cost per train Km. 12. Line haul Cost per Wagon Km. (Rev.) 13. Line haul Cost per NTKm (Pay Load). 14. Line haul Cost per Wagon Km. (Carrying units). (ii) Van and Shunting Goods. 15. Line haul Cost per train Km. 16. Line haul Cost per Wagon Km. (Rev.) 17. Line hau1 Cost per NTKm. (pay load). 18. Line haul Cost per Wagon Km. (Carrying Units). GROUP B 19. Cost of Documentation per Invoice. 20 Cost of Traction per Engine Hour (Other than shunting Diesel (Total). and siding) 21. ,, ,, ,, ,, ,, ,, Electric (Total). 22. ,, ,, ,, ,, ,, Diesel (Fuel and stores) 23. ,, ,, ,, ,, ,, Electric (Electric current consumed) 24. Cost of Traction per Train Engine Hour. Diesel (Total) 25. ,, ,, Electric (Total). 26 ,, ,, Diesel (Fuel and Stores). 27 ,, ,, Electric (Electric current consumed). 28. Cost of Traction per 1000 G.T.Kms.. Diesel (Total) 29 ,, ,, Electric (Total). 30. Cost of Traction per 1000 G.T.Kms.. Diesel (Fuel and Stores). 31. ,