Compact Development Guidance
As of May 2012
Chapter 15: Guidelines for Countries Proposing Railroads
MCC will use the feasibility study of the railroad project as the basis to examine the following and make a determination on what supplemental studies, if any, are required to develop the project sufficiently so that appraisal could commence:
- Preliminary description of rationale, including nature and measure of benefits, and beneficiaries disaggregated by gender, age, income, and ethnicity.
- Demonstration supported by appropriate data that the proposed project is likely to deliver the stated benefits to various beneficiary demographics.
- Identification of the need and principal driver(s) for a new railroad or for expansion/rehabilitation of an existing railroad.
- Demonstration supported by appropriate data that commercial or private financing is not available for the project and the reasons for its unavailability.
- Demonstration supported by appropriate data that privatization – including concession contracts with EPC arrangements – is not possible, and the reasons why.
- Identification of the range of alternatives with respect to adding tracks, extending the railroad, building a new one, or new spurs and alternative transport modes, including any environmental and social considerations (including potential resettlement) related to each alternative.
- Identification of areas which require more detailed, current or reliable information. If a new railroad is proposed, obtaining approvals from all relevant parties for land may be a significant and time consuming issue; identify the party responsible, process, who has to approve and a timeline at commencement of the due diligence phase.
- Collection and integration of satellite imagery and topographical maps at the appropriate scale (typically 1:25,000 for urban planning) identifying key elements of existing and proposed infrastructure, rights-of-way, and service areas. In addition, it may be appropriate for the due diligence process to identify other geo-spatial data – including but not limited to census data, water resources, and geological data – and combine them into a single GIS database.
- Meaningful public consultations (including gender, age, and income-based focus groups in communities potentially impacted by construction and operation and with beneficiaries involved in marketing activities/ trade, including with key NGOs and women’s civil society organizations.
Once MCC has made the determination to commence appraisal on a project, the infrastructure group will conduct the following assessments and identify key constraints.
- Review and validate statistics on passenger ridership and freight traffic demands on which sizing of the railway infrastructure is based to ensure economic viability of the investment. Particular attention should be given to traffic demand trends (i.e., growth or contraction) over the past ten, five, and three year period.
- Assess the positive and negative reasons for changes in traffic trends, such as competition, economic changes, labor unrest, strikes, and other issues not categorized above.
- Assess the recent patterns of change in terms of its sustainability, management capacity and institutional capacity conditions.
- Review projections for increased passenger and freight business and the underlying basis for the projections, including market surveys, contract offers, speculation, or a ‘build it and they will come’ approach.
- Assess the current competitive situation with respect to price sensitivity, service sensitivity, competitor’s resource, and lack of highway investment.
- Describe the threat of future competitors with respect to price, service, inter/intra modal, technology and other corridor competition.
- Investigate if the traffic projection capacity is constrained due to no rail capacity, due to lack of trains per day, track capacity, motive power, rail wagons, lack of coaches, or other reasons.
- Assess the threat of regulated prices or cross subsidization of other services such as low priced coal or fuel or passenger services that could lead to some freight customer loss.
- Ascertain if the demand projections are integrated into a transportation master plan or an operating plan for the expanded traffic on railway.
- Describe the alternative operating plan scenarios in terms of management/organizational structure, business model, resource allocation, budget, organizational development, freight marketing and sales, work force (disaggregated by gender, age, income, and ethnicity and considering formal and informal labor force).
- Review the changes and pattern of train operating statistics before and after any construction project, including but not limited to train-miles, locomotive requirements, average km per day per locomotive, etc.
- Analyze how the railroad can add capacity by adapting new trainload and weight standards such as train length, train tonnage and axle loads.
- Assess how the railroad will reduce the capital requirement for acquiring new rolling stock (wagons and locomotives) to handle the predicted traffic growth and analyze the implications of these operational and traffic changes through a projected financial plan.
- Assess how railroad will impact communities and livelihoods (of project impacted persons by gender, age, income, and ethnicity), particularly around areas with increased market activities (e.g., human trafficking, child labor, HIV/AIDS).
Technical Assessment: Engineering
- Evaluate the condition of all relevant existing rail assets, where appropriate, including (but not limited to) track, stations, maintenance facilities, bridges and drainage structures, switching and dispatching systems, rolling stock (locomotives and cars), and other assets.
- Evaluate technical upgrade options of existing assets to meet the projected increased traffic demand.
- Review all aspects of preliminary technical designs and proposed standards for upgrading existing assets and for new assets, and confirm appropriateness for criteria, demand requirements and environmental and social factors, including (but not limited to) track, stations, maintenance facilities, bridges and drainage structures, switching and dispatching systems, rolling stock (locomotives and cars), and other assets, informed by public participation from various beneficiary groups to identify technical design feature requirements for different demographics (gender, age, income, culture, ethnicity, etc).
- Compare the proposed design criteria to the standards to which the railroad is designed.
- Confirm that design specifications for construction investment match the market size of the proposed business plan.
- Confirm that the design uses resources in an amount that is consistent with good management and the intended financial performance of the railway.
- Confirm that the design is based on sound engineering standards that are a good fit with the intended traffic loads and traffic services and technically sound from a user’s perspective use by various beneficiaries.
- Confirm that the project has analyzed, assessed and considered all important engineering, train operation, and market plans used to advertise for the investment.
- Confirm that preliminary designs for the added/new track and train capacity are detailed and robust enough to provide accurate cost information.
- Confirm that the demand projections for traffic are accurate.
- Confirm that the proper legal basis (and possible regulatory procedures) are in place to support the pricing of the service in order to protect the revenue projections and the resulting pro forma financial calculations.
- Confirm that the resulting investment package is of sufficient detail and documentation to attract the total required capital to complete the entire scope of necessary capacity addition objectives.
- Complete estimates of the probable construction costs for the recommended alternatives.
- Ensure that communications and dispatching links have been noted and their impact on line capacity increase objectives have been established and simulated.
- Ensure that qualified engineers complete preliminary siding and main line track designs and that an MCC engineering consultant checks these designs. Confirm that these designs provide sufficient pre-bid cost information with an accuracy of +/-20%.
- Ensure quality materials such as: rails, ties, ballast, structural steel, other track materials (OTM) and other materials are available locally or can be sourced internationally without being subjected to import restrictions or delays.
- Ensure plant and machinery required for construction is available locally or can be mobilized without being subjected to import restrictions or delays.
- Ensure drainage requirements have been assessed for different categories of rail track and match the intended railway business plan.
- Identify major project risks and quantify, as much as possible, the impact of these risks on project cost, timeline and quality. Develop mitigation measures and estimate the cost of mitigation
- Develop project cost estimates for the purposes of investment decision, including all associated costs, such as costs relating to environmental mitigation, resettlement compensation, social safeguard measures, construction supervision, project management and technical audits.
- Develop provisions to be included in project cost estimate, such as physical contingency, allowances for specific risks that were identified in Appraisal, price contingencies, and allowance for the effects of foreign exchange rate fluctuations, and determine meaningful rates of inflation – local and foreign – to apply to base costs.
Technical Assessment: Economic and Financial
The MCC economist responsible for the assessment of the project will work to ensure that the proposed railroad project complies with MCC Guidelines for Economic and Beneficiary Analysis. The economic rate of return for each project should be sufficiently high to warrant investment and eligible countries should have reviewed relevant governance practices, including laws and regulations, and undertaken reforms, as possible, to enhance the anticipated economic benefits generated by the infrastructure projects. Infrastructure input to this analysis may include the following:
- Identify benefits expected to flow from the project, focusing on increases in incomes for workers, firms, and households. Identify the beneficiaries disaggregated by gender, age, income, and ethnicity, to the extent possible. Compare projected incomes and other benefits with and without the proposed project.
- Make an assessment of how benefits resulting from increased efficiencies (e.g., increased cargo and passenger capacity) are likely to accrue to the extremely poor, poor, near-poor, and not-poor.
- Summarize the design standards, design life and capital and maintenance cost estimates and confirm these are consistent with the assumed benefits and duration of the benefit streams. Note that the duration of the benefit stream is typically assumed to be twenty years. Assumptions that the duration is longer or shorter than this should be clearly justified.
- Confirm costs and project life is consistent with the engineering design.
- Confirm that the technologies that are proposed in the project and the engineering design will allow fulfillment of operational performance, as well as financial and economic objectives.
Technical Assessment: Environment, Social and Gender
MCC environment and social assessment experts will review projects for their compliance with MCC Environmental Guidelines and Gender Policy and resettlement guidance (www.mcc.gov), which include an expectation of compliance with host-country laws, regulations and standards, as well as requirements by which the host country is bound under international agreements. Particular attention must be paid to issues that generally arise including, but not limited to, the environmental (potentially toxic) impacts of train machine and washing shops. Assessment will also inform design by including gender analysis of use, control of resources, design appropriateness, and how well gender is integrated into project design, participatory planning processes, and implementation.
- Identify country-, region- or sector-level assessments, strategies and commitments with respect to climate change and their relevance to compact activities.
- Identify climate change impacts (from the project) and risks (to the project) and corresponding mitigation and/or adaptation opportunities, as relevant.
Legal and Regulatory Assessment
In consultation with MCC legal staff, the infrastructure group will assess projects to ensure that proposed projects do not violate any existing laws of the country or that MCC’s assistance for such projects would not violate any law or U.S. policy applicable to MCC. Infrastructure will also review relevant governance practices in the sector, including laws and regulations, and any reforms the country has or proposes to undertake. Finally, Infrastructure will, in consultation with MCC legal staff, review and revise any contracts related to the implementation of the proposed infrastructure projects. This assessment may include the following:
- Identify government policies, laws and regulations specifically related to railroad construction, operation and maintenance. Identify any international agreements specifically related to railroad construction, operation and maintenance. Identify any issues arising from such agreements, policies and regulations.
- Identify any governmental agencies or other entities that regulate the railway sector and whose involvement is necessary for the granting of licenses or permits and the setting of fees and tariffs for the proposed railroad project.
- Identify the ownership, lease and concession arrangements for the railway sector in general and for the proposed projects in particular.
- Identify any special arrangements that need to be made with any contractors performing work on the railroad.
- Identify any military presence that would benefit from the railroad, if any.
- Confirm that the technologies that are proposed in the project do not require any exemptions from local import regulations.
- Identify any laws or regulations governing private sector participation in the railway sector, through public private partnerships, concessions or other arrangements.
- Identify any competition laws or regulations applicable to the sector, including with respect to access by foreign carriers to the railway lines and the extent to which state-owned enterprises may compete with private enterprises.
- Identify any laws applicable to the financing, leasing (financial and operating), and acquiring of security interests in rolling stock and other railroad assets.
- Identify any laws and regulations relating to the ownership of land on which the railroad project is situated and rights of way and easements related to such land.
- Identify any laws and regulations governing foreign investment in the railway sector and any privatization laws.
- To the extent the project will involve international trade in cargo, identify and analyze any import and export laws, customs and other duties that may apply to the project.
- Identify and analyze any laws on public procurement to the extent that the project depends on the procurement of goods, works or services by state-owned entities.
- Identify any safety and inspection laws and regulations applicable to the proposed project.
- Review detailed description of the current arrangements for ownership, management and maintenance of the railroad, including details of the legislative framework, administrative framework, funding arrangements and maintenance responsibilities.
- Review existing performance with respect to clarity and acceptance of arrangements and responsibilities, and acceptance of reserves for maintenance. Identify causes of inadequate performance including legislative or administrative arrangements, resources, technical capability and capacity, and funding.
- Review maintenance programs to ensure that such plans are suitable for the new or improved railroad, including responsibilities, resources, funding. Identify shortfalls with current arrangements and provide details of a program to strengthen railroad management and maintenance arrangements.
- Review details of alternative maintenance funding options, including details of income derived from users and potential for increased cost recovery.
- Prepare a summary of actions needed to maintain the railroad to an acceptable level, including institutional strengthening, funding (responsibility and funding levels) and additional resources needed.
Risk Management Assessment
- Identify significant risks to the project, in particular construction cost increases, delays, sustainability of the railway, trade union issues, local acceptance, existing gender inequalities in market activities supported by the railroad or in the labor market, health risks (including HIV/AIDS), and take up of benefits across different demographics, take up of benefits across different demographics, and other factors affecting economic performance and distribution of benefits. Identify and assessing significant risks relating to durability, and confirm that design criteria adopted shall mitigate these risks within acceptable tolerance levels.
- Prepare a risk management plan to minimize the negative impact of the risks.
- Provide a summary of the technical and construction resources available in country and the previous experience with projects of similar size, nature and type.
- Identify local factors that may affect the timely completion of the works, including transport to/from the location for the contractor’s equipment, fuel and other materials, seasonal weather patterns such as avoiding the wet season, and health and safety risks including HIV/AIDS.
- Prepare an implementation program including contract awards, any approvals and permits needed, construction times, cash flow, government commitments and other hold points as appropriate.
- Recommend an appropriate procurement procedure and packaging.
- Recommend suitable supervision and management arrangements.