Final (Fifth) Draft for Discussion with Ebrd

FINAL (FIFTH) DRAFT FOR DISCUSSION WITH EBRD

CONTENTS

Executive Summary

Chapters:

1. Introduction
2. Definitions
3. Review of existing analysis:
4. Fleet condition review
5. Future operations of diesel fleet – loco life etcFleet size: CIS countries
6. Electrification and future operations of a diesel fleet
7. Scope of works for modernisation Current and future maintenance costs
8. Current and future maintenance costs
9. Options Assessment of reliability and other benefits
10. Options summary

1. KTZ Kazakhstan Railways’ experience
2. Tashkent locomotive works capability and description
3. Procurement strategy
4. Recommended procurement strategy
5. Contracting strategy
6. Likely tender participants and further potential
7. Cost estimate
8. Environmental review

8.1. Introduction

8.2. Legal and administrative framework

8.3. UTY environmental management and issues

8.4. Investment project and associated activities

8.5 Draft action plans

Continued …..

Contents (continued)

1. Economic appraisal
2. Assumptions
3. Capital Costs
4. Project Benefits
5. Results

10. Tashkent Works Foundries

APPENDICES

A. Environmental references

B. Environmental legislation and standards FRR and EIRR

C.Cooperation between Kazakhstan and Uzbekistan Railways

FORWARD

The Consultant found UTY personnel to be helpful and efficient to work with. This facilitated progress of the commission. Active participation of Dilshod Akhundjanov of EBRD Tashkent further assisted in the speedy fact-finding phase of the Consultant’s work.

The Consultant wishes to record his thanks to all UTY staff for their energetic and positive help; in particular Zulkainar Kashaev, Head of PIU, and Yusuf Khaidarov, Head of Locomotive Department. Finally the Consultant wishes to record his thanks to the First Deputy Chairman of Uzbek Railways, Achilbay Ramatov, who made time available for a meeting, illustrating UTY’s commitment to the project at the highest level.

DISTRIBUTION:

EBRD, London (2)

Scott Wilson, Swindon

Philip Shepherd

Issue FINAL: draft 5: Draft

Prepared by Philip Shepherd

ConsultantSeptember 2001

Authorised by Alan Brookes

Project DirectorSeptember 2001

Scott Wilson Railways

1 Holbrook Way

Swindon SN1 1BY, U.K.

Reference A819160

SECOND UZBEK RAILWAY PROJECT – TECHNICAL ASSISTANCE FOR LOCOMOTIVE RE-POWERING DUE DILIGENCE

EXECUTIVE SUMMARY

The key findings from our limited due diligence are as follows:

• The TE10 diesel locomotive modernisation project represents a sound technical and financial proposal.
• The modernisation is likely to produce significant improvements in reliability, availability, maintenance costs, fleet size, load hauling capacity and exhaust emissions of the TE10 locomotive fleet.
• Residual technical problems which may exist in the small fleet modernised in Kazakhstan can be readily overcome in Uzbekistan by careful engineering management at operational level.

A similar pilot project has been completed for Kazakhstan Railways (KTZ) using General Electric Transportation Systems (GETS) equipment. The technical detail of this report takes into account the experience of KTZ and the views of the equipment manufacturer, GETS, and other suppliers.

This report represents the Consultant’s views following visits to the railways of Uzbekistan and Kazakhstan in May, June and September 2001, and visits to equipment manufacturers in the U.S.A in August 2001.

An additional element of the project, which has been added later in the timescale of this commission, is concerned with renewal of foundry equipment at Tashkent Works. This important subject is dealt with in Section 10.

1. INTRODUCTION

In January 2001, the EBRD and Uzbekistan Railways (UTY) began discussions on a possible loan from the EBRD to finance the refurbishment of about 30 of the existing fleet of class TE10 main line diesel electric locomotives. These are made up of 72 traction units (or Sections) of nominal 3000HP coupled in multiples of two or three. A similar project, for a seven TE10 sections was recently completed in Kazakhstan (but not funded by EBRD).

As a critical part of the project preparation, EBRD appointed Scott Wilson to undertake due diligence on the technical feasibility of the proposed so-called “transplant” approach. The term transplant is not a term recognised by the railways nor by GETS. Therefore, the term used in this report is “modernisation”.

The Bank requires this report to identify problems encountered or foreseen, with indications of how they may be overcome. The Report follows the Consultant’s Inception Report which recorded the first mission to Uzbekistan Railways (UTY) from 4 to 8 June 2001. That was preceded by a visit to Kazakhstan Railways (KTZ) from 30 May to 1 June 2001.

In line with the Bank’s wishes, the consultant has reported informally on a regular basis since submission of the Inception Report, to enable a dialogue to take place as the project develops up to the issue of the final report .

This report includes financial and environmental commentaries not included in the Iinception Rreport, as well as discussion of a further option to be considered by the consultant on behalf of the Bank; that of purchase of used locomotives.

1. DEFINITIONS

Locomotive: / an operational entity comprising one, two or three sections
Section: / a single component of a locomotive, self-contained within a two-bogied body and containing one diesel engine of approximately 3000HP.
Engine: / the diesel engine of a section.
Diesel electric locomotive: / diesel locomotive with electrically driven axles. (The TE10 is a diesel electric locomotive).
Modernisation: / replacement of locomotive components including engine, alternator, control gear, auxiliaries and cooler group but excluding all components below sole bar level i.e. bogies and traction motors etc.
Re-powering: / modernisation of main power unit including diesel engine, alternator and control gear.
Traction unit: / see Section
Unit: / see Section
UTY: / Uzbek Railways, Uzbekistan Temir Yollari
KTZ: / Kazakhstan Railways, Kazakhstan Temir Zholy

1. REVIEW OF EXISTING ANALYSIS

3.1 Fleet condition review

The Consultant has discussed issues with UTY and taken into account the views of KTZ in coming to the views expressed in this report below. Typical locomotives were also examined at Tashkent Works to further the understanding of fleet condition.

The residual condition of the TE10 locomotive fleet, particularly those built from 1981 to 1989 is sufficiently good to support modification. Locomotive life can be extended to 38 years or more, following upgrading modernisation with the “modernisation” concept. If locomotives built in the latter years of production 1981 to 1989 are selected for modernisation, then a life at least to 2027 can be expected. The consultant’s view is that the locomotive body shells could have a life even longer than this. They are heavily engineered. This makes a second modernisation modification possible in the longer-term future if economic conditions are right at that time.

The build dates of the UTY locomotives are Class is as follows: 2TE10M,158 built between 1981-1990, 3TE10M, 85 built between 1983-88 and the TE10M, 19 built between 1983-88 The remainder of the 2TE10 fleet includes 9 2TE10L built 1973-77 and 15 2TE10B built 1977-81.

3.2 Fleet size: CIS countries

Over 14,000 locomotives comprising two or three sections each were built in the Soviet Union. It is estimated by UTY and others that 10-12,000 survive. Of this total 8,000 are thought to be in general operational service and in sufficiently good condition to warrant upgrade investment. The 8,000 locomotives are operating in Russia (5,000) and other CIS countries (3,000). The size of these fleets illustrates the potential for cost and efficiency improvements throughout the CIS countries by adoption of a proven modernisation programme. The business potential could generate considerable interest from suppliers.

3.3.Electrification and future operations of a diesel fleet

Electrification of some UTY routes is planned. The impact on the future requirements for diesel locomotives will occur from about 2016 and is not expected to be significant. A maximum of 700km of a total route length of 13,000km will be electrified. Therefore consideration of the impact of electrification after 2016 on the requirements for diesel traction should not be a constraint to this project.

At present 618 km of UTY’s route length of 3656km is electrified. Further electrification projects are in hand or are planned. These are: 60km from Khodjikent to Tashkent due for completion in 2002; 114km from Angren to Tashkent to be implemented in 2005; and 220km Bukara to Marokand in 2010. Therefore in ten years’ time just under 30% of the railway will be electrified compared with 20% today. It should be remembered that only 16% of the TE10 fleet is to be modernised under the current proposed loan arrangement. Therefore the plan to increase the proportion of electrified railway up to 2010 should not materially affect the proposal to modernise diesel locomotives being currently considered.

3.4. Current and future maintenance costs

There is general agreement between UTY, KTZ and the consultant, that after implementation of the modernisation option, maintenance cost savings will be about25 to 30%. Current levels of maintenance costs and the potential savings from the reliability-generated benefits of the modernisation are shown in table 3.4.2.3.1.

A summary of the current operational TE10 fllet is shown in table 3.4.1.

Table 3.4.1 Size of the TE10 fleet at September 2001

Locomotive class / Quantity of
locomotives
maintained / Quantity of sections maintained
2 – TE10
3 – TE10
Total / 88
44
132 / 176
132
308

Source: UTY September 2001

Table 3.4.21. SAVINGS: Existing annual maintenance costs and projected reliability

generated savings.

Total cost for 308 sections / Total cost for one section / Modernisation saving % / Modernisation saving per section / Total saving for 50 sections
Maintenance
Fuel
Lub Oil / $9.0m
$19.8m
$0.9m / $29k
$64k
$3k / 30%
20%
85% / $8.7k
$12.8K
$2.5k / $0.44m
$0.64m
$0.12m
Totals / $29.7m / $96k / $24.0k / $1.2m

Source: UTY, SeptemberJune 2001

On the basis that 50 units might be funded by the project, the annual UTY reliability-generated maintenance savings would be $1.2m$1.45m to $1.75m per annum for the 50 modernised locomotives, when compared to an unmodified control group.

In addition, availability improvements are expected, whereby two modernised locomotives will replace three unmodified ones. On this basis, 50 modernised sections will replace 75 unmodernised ones, leading to an additional saving of 25 x $117k$96k, or $2.92m$2.4m per annum.

In summary, reliability-generated savings will be up to $1.75m about $1.2m and availability-generated savings around $2.92m$2.4m, giving a total potential saving of $4.67m $3.6m per annum for every fifty sections modernised.

The Consultant considers that a conservative view of availability savings should be taken at this stage of UTY’s development, with the management assumed to be able to capture half of the potential availability savings by withdrawing locomotives from the fleet and adjustment of locomotive operating diagrams to derive the financial benefits of a smaller fleet. This gives a realistic prospect of availability savings of $1.46m $1.2m per annum. Taking a conservative view of potential reliability savings of $1.5m per annum, Therefore, the total savings are likely to be $2.96m $1.2m+½ of $2.4m=$2.4m per annum at a probability of 80% (Consultant’s probability estimate). The cost savings arising from manpower train crew savings have not been taken into account.

If a robust management view is taken by UTY, the higher estimated savings could be realised, that is $1.75m $1.2mreliability related and $2.92m $2.4m availability related, a total of $4.67m$3.6m.

These figures are summarised in table 3.4.3.3.2.

Table 3.4.32. SAVINGS:

Summary of annual operating and maintenance savings

for an assumed fleet of 50 modernised sections.

Estimate / Reliability
generated
saving, pa / Availability
generated
savings, pa / Total annual
savings / Consultant’s probability rating
Most likely / $1.2m / $1.46$1.2m / $2.96$2.4m / 80%
High / $2.92$2.4m / $4.67$3.6m / 30%

The probability rating indicates an 80% chance that these savings, will be achieved. The savings represent a significant cost saving for UTY year-on-year. The total fleet operating and maintenance cost is $29.7m per annum for the existing fleet of 308 sections. Therefore the savings represent 8% (most likkly) and 12% (less likely) of the total fleetbudget saved. These savings exclude any traincrew manpower savings which UTY may derive from increased efficiency of the TE10 fleet.

3.5 Scope of works for modernisation

The optimum scope of work for the modernisation option should be similar to that undertaken by KTZ. This includes the diesel engine, main alternator, control gear, cooler group and auxiliaries. These components represent 85% of all reliability problems in the fleet. The scope excludes traction motors on the basis that the additional cost is unlikely to give an acceptable payback. Inclusion of traction motors in the scope raises the modernisation price closer to that of a new locomotive. A set of new traction motors would add $180k to the price, to which the consultant estimates $100k-worth of bogie modification might be necessary depending on configuration of the new traction motor, giving a total additional cost between $180k and $280k. Table 3.5.3 includes data for traction motors, making up “Modernisation Plus” for comparison:

It should be noted that retention of the original Russian-built traction motors enhances the proportion of local input to ongoing locomotive care, without necessarily reducing locomotive efficiency or reliability.

Table 3.5.3. COSTS: Comparison of cost estimates

excluding locally-funded assembly costs per Section

UTY and KTZ opinion
Cost $m / Contractors’ estimates $m / Consultant’s most likely price $m
Excluding UTY local costs
New locomotive / 2.25 – 3.0 / 2.5 – 3.3 / 2.7
Modernisation upgrade / 0.97 – 1.26 / 0.71 – 1.26 / 1.1
“Modernisation Plus” upgrade / 1.15 – 1.54 / 0.89 – 1.54 / 1.4

1 Gibb estimate plus traction motor estimates by UTY and the Consultant

² KTZ estimates plus traction motor estimates by UTY and the Consultant

3 Excluding supplier’s non-recurring costs

The Consultant’s opinion is that the figures in table 3.53.3.3 represent the variability of tender values that might be received, particularly if CIS and Eastern European countries participate. The most likely price excluding non-recurring costs and locally financed assembly costs in Uzbekistan, for about 46 sections is assessed as $1.1m per sectioneach. “Most likely prices have been calculated after informal discussions with the railways of Uzbekistan and Kazakhstan and suppliers in the industry.

The diagram below shows the locomotive and the layout of modernised components.

ET10 locomotive and layout of modernised major components.

3.6 Assessment of reliability and other benefits

The potential for reliability improvements from a modernised fleet can be seen in the chart below, which shows a breakdown of locomotive failure modes:

Chart 3.6. Locomotive failure causes. Source: UTY, June 2001

The chart shows that approximately 85% of failure causes (engine failures and “other” causes) are addressed by the Modernisation scope as implemented by KTZ. The Consultant recommends this scope as the most beneficial in cost–benefit terms. The remaining 15% is related to traction motor problems not addressed by the proposed scope, but which may be addressed locally by simple improvements in traction motor maintenance techniques at operational level.

The data provided by UTY is almost identical to those presented to the consultant by KTZ for their fleet of TE10 locomotives, indicating its reliability.

3.7 Options summary

In addition to the new, modernisation and “do nothing” options, views on the purchase of used locomotives and re-engineered components are shown below.

Procurement Option / Advantages / Disadvantages
New locomotive / High reliability and availability
Low running costs / High cost
Foreign technology – high cost of spares
Low local input
Modernisation (both
new and
re-engineered options) / Improved reliability
Lower maintenance costs
Medium investment level
Medium local input
Minimum of foreign technology / High cost of spares for foreign technology elements of modernisation
Used locomotives from standard gauge
Railway* / Low cost / Reliance on foreign technology
Less reliable supply chain – outdated components
Non standardisation caused by modifications
Uncertain reliability
High maintenance cost
Need to modify bogies to Russian gauge
Low level local input
If USA locomotives, need to reduce axle load from 35tonne to 21tonne– probably not feasible.
Likelihood of other sources of satisfactory used locomotives very low.
Do nothing / No investment / High ongoing maintenance costs
High Rrisk of fleet being unmaintableentionable within 7 years

* It is assumed that used locomotives are sourced from a “standard” 1435mm gauge railway and will require conversion to 1520mm gauge.

3.8Alternative modernisation options

3.8.1 Modernisation option ‘New’

This option would encompass new modernised components being fitted including power unit (engine and alternator), electronic power unit control equipment, cooler group and auxiliaries. It would exclude all below sole bar equipment including traction motors.

3.8.2 Modernisation option ‘re-engineered’

This option would encompass the same components as the ‘new’ option, but would specify re-engineered, i.e. reconditioned components.

There is a mature worldwide business in re-engineered locomotive components, which carry the same warranty as equivalent new components, and give a significant price reduction of approximately 40% of the new price.

3.8.3 The technical specification

The technical specification will preferably be a performance specification, or “output” specification.

All interface issues between existing ET10 layout, those components to be retained and the modernised components should be included in the contract as the supplier’s responsibility and risk identified accordingly.

A typical output specification for a locomotive would include but not be limited to the following parameters requiring specification by UTY:

Performance requirements
Track load
Track profile
Minimum train speed / Statutory regulations
Noise levels
Safety requirements
Equipment certification
Engine emissions
Environmental conditions
Ambient temperature range
Humidity/precipitation
Dust/sand / Clearance requirements
Static
Dynamic
Overthrow
Weight
Maximum locomotive weight
Maximum axle load
Maximum bogie imbalance / Power performance
Traction
Electric train supply
Whole life cost
Fuel consumption
Cost of spares
Maintenance costs / Traction motors
Characteristics of existing traction motors

The procurement strategy is recommended to be one which gives maximum freedom to the supplier. Under this strategy the supplier is able to manage contractual risk, and so minimum risk is retained by the client, UTY. This strategy is most likely to result in an optimum price for UTY in an open, international tender, particularly if UTY is able to resist the temptation to specify non-standard requirements. That is not to say that UTY requirements essetial for operational efficiency should be excluded. The point is that the higher the degree of non-standard requirements (as defined by suppliers), the higher the unit price will be and the lower number of sections which can be modernised within the budget..

4. KAZAKHSTAN RAILWAYS (KTZ) EXPERIENCE OF TE10 MODERNISATION