Wednesday, December 11, 2013

MACHINERY & PLANT PROGRAMME - IR

MACHINERY & PLANT PROGRAMME - IR
Brief About Works Programme
1. All expenditures of Railways in the following year (say April 2010 to March 2011) are estimated and consolidated in the  form of Annual Budget during February (in this case Feb’  2010) itself.
2. The complete Budget (Demands for Grants) will be presented to the Lok sabha and the Rajya sabha for voting.
 
1. The Grants as voted by Parliament are distributed by Rly Board among the Railway administrations. This is called  “Budget Grant”
2. For the preparation of the Budget by Rly Board, Rly administrations are required to submit their requirements for the following year during December itself.
3. The estimates of expenditure on Works, Machinery & Rolling stock, to be incurred during the following year are to be submitted to Rly Board.
4. In respect of New works, it is submitted in the form of Preliminary Works Programme (PWP).
 Procedure for Works Programme proposals
1. User who needs the infrastructure facility should identify the ideal location and indicate the facilities in a neat sketch.
2. Where Open Line Yard is involved, the proposed facility  should form part of the Master Plan for the Yard.
3. Obtain estimated cost for civil, electrical and S&T portion of works from the concerned branches.
4. For Mechanical portion of work (mainly M&Ps), obtain latest Budgetary offers from reputed firms / OEMs. Points to be taken care on arriving the M&P cost are given separately.
5. After framing the proposal, it should be vetted by Associate Finance.
6. Finance observations are to be attended before proceeding further.
7. Approval of DRM’s / CWM’s to be obtained.
8. After approval, the proposal has to be forwarded to Planning wing of HQ Mechanical department within the specified time frame (Standard Calendar - given separately).
9. Individual proposals received from different streams i.e. Carriage and Wagon, Workshop and Diesel sheds are compiled and put up to respective HODs for approval and to indicate priority.
10. The combined list of proposal with HODs’ priority will be discussed with CME and proposals are finalized.
11. The finalized proposals formulated with cost estimate are sent to CPDE for compilation as a booklet for discussion in the Preliminary meeting conducted by GM.
12. Meanwhile, Board indicates ceiling limit for each Plan Head and advises to the Railways to frame PWP proposals.
13. GM will conduct a PWP meeting with all PHODs and DRMs to finalize the list of proposals within ceiling limit.
14. The agreed proposals are then sent to FA&CAO for concurrence.
15. The concurred proposals are then submitted to Board with the approval of GM.
 
1. while initiating proposals the following guidelines
should be kept in mind
Advancement in Machine Tool technology.
Possibility of acquiring one/two machines to replace a large set. -
Multipurpose / special purpose machine to replace a group of machines
for manufacture of a single product.
The current and future workload – Define load centres adequately.
Draw a blueprint of demand verses availability to identify deficiencies /
grey area.
2.The Following are the areas where inputs may be
considered
Material handling facilities, like mechanized handling of heavy items.
Cleaning equipments for sub-assembly like Bogie, Wheel sets, Traction
Motor, Roller Bearing and Axle Boxes. For these, savings in Manpower
that will accrue may be indicated.
Flaw detectors and hotbox detectors for maintaining higher safety
Adequacy of wheel lathes based on load arising.
M&P more than 20 years old should be critically examined and
proposed for replacement if sufficient load exists.
However it may be noted that completion of codal life is not ipso-facto,
sufficient ground for replacement of a machine. Its condition and cost of
repair should form the basis of its replacement. The justification should
indicate the jobs undertaken and the workload on the machine. The total
number of similar machine in the load centre and shortfall of capacity
should be clearly indicated.
The estimated cost of the machines indicated in the proposals should be
present day cost and should include essential accessories. The cost can
be taken from latest COFMOW compendium and costs for other machines
by market survey.
Investment in M&P is to be thoughtfully made as the cost has escalated
exorbitantly and one to one replacement is not at all desirable.
For items costing more than Rs. 1 crore Railway Board prior approvals is
to be taken.
All the items proposed on Additional account should be accompanied with
financial justification by DCF technique working out the Rate of Return
duly vetted by Associate finance.
ALLOTMENT OF UNIFIED CODE NUMBERS & MAINTENANCE OF
ASSET REGISTER.
On Successful commissioning of a new asset, it is included in the Asset
Register of M&P by allotting an Unified Code Number.
This is a Nine Digit Number:
The first two digits identify the units – LW/PER, MAS DIV etc.
The next two digits indicate Sub Location – CR (shop) AJJ (Division) etc.
The next two digits indicate the Machine group – Like Wheel Lathe, AJTB
Lathe, Crane etc.
The next three digits give the individual machine number.
It should be ensured by the units that no machine is kept in service
without Unified Code No and the same should be painted on the machine
for easy identification. Similarly when the machines is condemned and
disposed off, this machine is removed from the Asset register.
CONDEMNATION OF M & P.
Condemnation of M&P is done on two accounts.
1) When the machine is replaced and the new asset is acquired, the old
machine for which replacement has been sanctioned has to be condemned
and disposed off.
2) A machine can also be condemned on age and condition basis. For this a
review has to be done by the HOD of the Workshop under whose
jurisdiction the machine falls.
3) Disposal can be on ‘ AS IS WHERE IS’ condition or as ‘SCRAP’,
depending on the value it will fetch.
4) If sufficient justification for retention is available Railway Board’s
approval has to be obtained for the same. But it is seen that only in rare
cases and for a temporary period such approvals are accorded.
5) No replaced machine should be kept in service.
6) Machines within codal life cannot be condemned by these methods.
7) Once the condemnation is approved by CA, it should be disposed off
immediately under DS8 and the credit obtained should be advised to this
office.
ASSISTING SHOPS /SHEDS / DIVISIONS IN GETTING THE
MACHINES REPAIRED DURING WARRANTY COMPLAINTS.
This office assists in Unit level offices in getting the machines repaired by
interacting with the firm, the procurement agency and the consignees.
Wherever necessary CA’s sanction is obtained for expenditure on repairs.
IDENTIFYING SURPLUS MACHINES AND THEIR DISPOSAL
A machine becomes surplus due to:
1. Closure / change in activity
2. Reduction in workload.
IDENTIFYING SURPLUS MACHINES AND THEIR DISPOSAL
The Surplus machines are identified at regular intervals and offered to
other Railways/ Production units. Such machines are transferred to them if
demand exists.
Similarly the list of surplus machines offered by other Railways / Production
Units is scrutinised and if found suitable to our requirement, action is taken
to transfer such machines to this Railway.
PROCUREMENT UNDER COFMOW
As soon as the year’s Machinery and Plant sanctioned is advised by Board
COFMOW will send a list of Machinery and Plant which would be procured
by COFMOW, duly conveying the dispensation to procure other low valued
items through COS/PER. Accordingly vetted indents in the COFMOW
format would be forwarded to COFMOW for processing the procurement.
COFMOW would consolidate the requirements of all the Railways and float
tender duly bunching the like machines.
PROCUREMENT UNDER COS
Vetted indents in S.1302 format along with the indenting specification for
all the Machinery and Plant for which dispensation of COFMOW is conveyed
and for the Machinery and Plant sanctioned under GM’s Out of Turn, for
processing the procurement wherever, DGS&D rate contract are available
(i.e.) Vehicles, material Handling equipments. The procurements would be
processed through RC if found suitable, to avoid any delay in procurement.
Other items would be processed through LT / SLT / OT.
From time immemorial, the Machinery & Plant Programme under Demand
No.16 – Plan Head “41” was prepared and finalised manually involving
enormous paper work and minor mistakes in the process.
Hence, a Web based system for creation, process and finalization of
Machinery & Plant proposals were initiated in the Programme year of 2004-
2005. This can be accessed at www.irmnp.com:
 Sanctioning Powers
Works Costing      Sanctioning Authority  Remarks
5 cr & above              Rly Board              Prior Approval is Necessary
1 cr & above but        Rly Board
upto 5 cr
Upto 1 cr                   GM
Upto 5 lakhs              DRM                         30 lakhs in case of P A.
Compilation of Approved Works
Works Costing                            Compiled As
2.5 cr & above                            PINK BOOK
5 lakhs** & above but up               LAW BOOK
to 2.5 cr
** Different for different plan heads.
Time Schedule
Works Costing                     Target Date             Remarks
                                 (for submission
                                    to CPDE)
 5 cr & above                  15 January              For PWP 2010-11 
                                 (Previous Year)             15 Jan 2009
1 cr & above but          28 February              For PWP 2010-11,
upto 5 cr                    (Previous Year)            28 Feb 2009
 Upto 1 cr                      5 January               For LAW 2009-10,
                                (Current Year)                5 Jan 2009
 
Common Mistakes in the Proposals
1. Associate Finance gives vetting subject to some conditions which are not attended / remarks provided.
2. Not obtaining All Concerned Departments’ clearance especially Traffic, for Openline proposals.
3. Not obtaining costs from Respective departments.
4. Improper Plan Head. (e.g. Canteen in PH 42 – can be under PH 52 Staff amenities)
5. Improper Allocation. (e.g. Renewal of flooring in DF – can be under DRF)
6. Non inclusion of D&G charges in the estimates
 
Common Mistakes in the Proposals – in M&P Estimates
1. The common mistake is adopting only Basic rates in the estimate leaving out Excise duty & Cess, packing, forwarding, VAT, Freight etc.
2. Excise duty as applicable (max @ 16%) and VAT as high as 12.5% constitute a major chunk.
3. Non inclusion of these costs lead to delay in procurement, necessitate revision of estimate.
4. Sometimes this will result in change of level of the officials as per Schedule of powers apart from reduction in D&G charges and contingency charges.
5. The delay will result in further escalation of the costs.
6. Also, the Accessories, Toolings, Additional attachments and length of the DSL required are not taken into consideration while arriving at the cost.
7. Inclusion of the same at the time of specification leads to insufficient costs.
8. Power requirement of each M&P should be clearly spelt out to plan for adequate power supply arrangements
 
Allocation: Capital
Works which can yield financial return (RoR) of minimum 14% per annum can be charged under CAP. Since funds are borrowed from open market through IRFC, utmost care has to be taken to ensure the financial yield (a minimum of 14%) is obtained.
•Increase in POH of AC/Non AC coaches.
•ROH outturn of wagon depots.
•Augmentation of Diesel loco holding in Diesel sheds.
Allocation: DRF
Works which are entirely for replacing the old assets after their codal life are charged against DRF.
•Repair / Replacement of Covered shed.
•Replacement of Floors / Roofing.
•Replacement of Old Pit line.
Allocation: DF
Works which are for developing / augmenting of some existing facilities are proposed under DF. There are four sub heads under DF
D F I   : PASSENGER AMENITIES PH 52
D F II  : LABOUR WELFARE ACTIVITES PH 53
D F III : UN REMUNERATIVE OPERATING EXPENSES
D F IV  : SAFETY WORKS
 
posted on 12/12/2013

Sunday, December 8, 2013

FINANCIAL JUSTIFICATION FOR RAILWAY PROJECTS

FINANCIAL JUSTIFICATION FOR RAILWAY PROJECTS
All expenditure incurred on the new assets or on improvement of exiting assets should be financially justified before it is actually incurred except when it is chargeable to ordinary revenue or when it is incurred on a statutory obligation in consideration of safety or to provide amenities to the staff or railway users.

Further, that except in the case of residential buildings, and rolling stock to which special rules are applicable , no proposal for expenditure should ordinarily be considered as having been financially justified unless it can be shown that the earnings or the savings in working expenses expected to be realized as a result of the proposed outlay are such that after meeting the average annual cost of service of the assets, they yield a return at not less than the rate at which dividend is payable to the general revenues.

It would thus appear that generally all expenditure on new assets or on improvement of existing assets must be financially justified. There may be schemes of expenditure falling within the categories of “un-remunerative projects for improvement of operational efficiency” which are under the existing rules of allocation chargeable to DF or OLWR according to the amount involved.  Even in such cases however, full financial implications are required to be worked out to see whether the scheme is likely to be remunerative or otherwise. If it is expected to be remunerative the expenditure is charged to capital otherwise to DF or OLWR.

No Leader Yet I Must Work  
No = New Lines
Leader= Line capacity works
Yet = yard remodeling
I = Iintroduction of new services
Must = micro wave works & signaling
Work=workshops

Preparation of the project estimate:
In view of the precarious financial situation, the present system of making budget proposals in a hurried way without much consideration must be stopped forth with. To achieve this dedicated and concerted effort on the part of the executives and finance personnel is required.

Earnings estimate:
Assessment of working expenses:
Provision of depreciation:
Provision for rolling stock
Schemes for change of traction:


CAPITAL BUDGETING IN INDIAN RAILWAYS

CAPITAL BUDGETING IN INDIAN RAILWAYS
Railways are not only operating widest and biggest surface transport in the country, it also an infrastructure company fulfilling the national objective of developing under developed regions and link them with the transport net work. While the road transport is an advantageous position as the infrastructure of roads, bridges, tunnels etc are laid by the national / state high way authorities. Further, the maintenance work of the transport net work is also done by the same agencies. However, the railways are put to severe hardship by executing infrastructure projects, repair and maintain the ever expanding network and still run the mammoth transport at affordable cost with no loss. Strange but true, the IR is the only railways in the world which does not receive any subsidy and yet maintain the financial viability of the system.

ROLE OF PLAN HEADS:
For creation of infrastructure assets for the conduct of rail transportation the IR needs massive investment from the GOI or the public or the private sector. From the times of the Mahla Nobis-Tata Plan 1945, the private sector is reluctant to invest in the railways the main reason being the long gestation period (locking up of capital for 20 to 25 years) and the poor returns as the tariffs and rates are fixed by the Parliament irrespective of the actual cost of service. Further, the public have started to invest in the development banks like ICICI[1], IFCI[2], IDBI[3] from the 1970s and later with Unit Trust of India as the small investors could not cope with the vagaries of the volatile stock market of India. Hence, out of three sources two sources are ruled out for investment in the railways. Therefore, the GOI is called upon to fulfill its historical responsibility of creating and sustaining the railway net work as in the people’s republic of china. The countries is yet to realize the importance and necessity to invest huge money in the rail network which alone is environmental friendly, less fossil oil consuming, and affordable transport system.  
In the words of P.C.Tandon “This universe of a State Public System, with a historical continuity and tradition now enters it’s their century of active life the 19th 20th and the 21st but with a challenge.  As it faces year 2000 it has on its own initiative and tradition decided to take a close look at its own system and without the interference of customers the Public, the State and abroad to evolve new structure, system and management ethos that will give a good fit with the emerging social and economic imperatives and thus fulfill its natural task of a service performed efficiently economically and viable financially[4] said a decade ago.

RAILWAYS BETTER CHOICE THAN ROADWAYS: There is a growing realization all over the world and especially in the Americas and the Continent that the roads money be better spent on the rails.  P.C. Tandon has recorded some of the sentiments of the British, American, Dutch, German, Swedish and Italian people in his report.[5]  However, the present Indian govt. is bent upon spending a colossal sum of Rs. 36,000 Crores on the development of roads which would further damage the fragile environment, deplete the fast consumed fossil oil, and choke the road traffic.  Therefore, a plea must be made to the Govt. of India that the decision maybe reviewed in favour of the railways, which need capital support at this crucial juncture where the demand on the railways due to liberalization has increased to manifold.

For the purpose of link with the accounts of the Central Government the Plant heads will form the Minor Heads of Railway Capital under the Major Heads "546-Capital Outlay on Indian Railways-Commercial lines" and "546-Capital Outlay on Indian Railways-Strategic lines." The minor Heads classifications are as follows:"
PLAN HEADS
11. New Lines (Construction).
42. Workshops including Production Units
12. Purchase of new lines.
51. Staff Quarters.
13. Restoration of dismantled lines.
52. Amenities for staff.
14. Gauge conversion.

53. (i) Passenger Amenities.
   (ii) Other Railway User Amenities.
15. Doubling.
61. Investment in Government Commercial under Takings-Road services.
16. Traffic facilities-Yard remodeling and others.
62. Investment in Government Commercial under­ taking-Public Undertaking
21. Rolling Stock. 
64. Other specified works.
29   Road Safety work

30   Road Safety work

31. Track renewals.
71. Stores suspense
32. Bridge work.
72. Manufacturing suspense.
33.Signalling and Telecommunication works.
73. Miscellaneous Advances.
34. Taking over of line wires from P. & T. Dept.
81. Metropolitan Transport Projects.
35. Electrification projects.

36. Other Electrical works.

41. Machinery and Plant.

The sub and detailed heads give the break up of the expenditure on assets in its details such as Preliminary Expenses, Land, Formation, Permanent Way, Bridges, Stations and Buildings etc. In the classification given in the following pages the details of sub-heads and detailed heads which have been given for the minor heads 1100-new lines will be adopted for the other minor heads Depending upon the nature of the asset being created or replaced to the extent indicated against the respective head.

For example, when track renewals are undertaken the allocation of expenditure will be given as 3141 or 3142 for renewal of rails and fastenings or sleepers and fastening as the case may be. To these 4 digits will, however, be added the code for primary unit of expenditure viz., wages or materials etc. to complete the allocation e. g., 3141-04 will indicate the pay and allowances of departmental establishment engaged on renewals of rails and fastenings. The cost of Permanent Way materials etc. directly supplied for this work will be allocated to 3141-04 and so on.

If a work of construction of workshop alone is undertaken the workshop buildings will be represented by 4263 and the workshop equipment by 4274 (assuming the equipment is for Mechanical Department). The primary unit (or object) code will be added as the last 2 digits according to the object of expenditure.

Therefore, the capital projects in the railways are divided in to three major heads
1.       Preliminary and Final Works Programme: For all Civil Engineering Plan Head Works (Form E. 618 Indian Railway Engineering Code
2.       Rolling Stock Programme: For Rolling Stock Plan Head Works(1501.W Indian Railway Mechanical Code)
3.       Machinery and Plant Programme: For Machinery and Plant including equipments at Railway Hospitals

Sources for creation of assets:
        
ALPHA
NUMERIC
SUBJECT
P
20
CAPITAL external
Q
21
Depreciation Reserve Fund- internal
R
22
Open Line Works – Revenue internal
S

23
33
43
53
internal
Development Fund I     (Passenger Amenities)
Development Fund II    (Labour Welfare works)
Development Fund III   (Un remunerative works)
Development Fund  IV   (Safety works)
T
26
Railway Safety Fund
U
27
Special Railway Safety Fund




[1] Industrial Credit And Investment Corporation Of India
[2] Industrial Finance Corporation  Of India
[3] Industrial Development Bank Of India
[4] Prakash Tandon, Report Of The Committee To Study The Organizational Structure And The    Management Ethos In The Indian Railways,  New Delhi, March 1994, p. 3
[5] Prakash C.Tandon ibid