Republic of Korea Korean National Railroad Review of Operational

Report No. 6692-KO Republicof Korea KoreanNational Railroad

Public Disclosure Authorized Reviewof OperationalEfficiency

June25, 1987 AsiaRegional Office FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

Document of the World Bank

Thisdocument has a restricteddistribution and may be usedby recipients onlyin the performanceof theirofficial duties. Its contents may not otherwise bedisclosed without World Bank authorization. CURRENCY EQUIVALENTS

Curency Unit - Won (W)

US$1 = W 870 (as of December 1986) US$1150 = W 1 million

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

1 meter (m) = 3.2808 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.205 pounds (lbs) 1 metric ton (m ton) = 2205 pounds (lbs)

ABBREVIATIONS AND ACRONYMS USED

AAR - Association of American Railroads ATS - Automatic Train Stop BPR - Bureau of Public Roads CTC - Centralized Traffic Control EDP - Electronic Data Processing EPB - Economic Planning Board COK - Government of Korea hp - horsepower KEPC - Korea Electric Power Company KHC - Korea Highway ,orporation KMPA - Korea Maritime and Port Administration KNR - Korean National Railroad KRIHS - Korea Research Institute for Human Settlements km/hr - kilometers per hour MIS - Management Information System MOC - Ministry of Construction MOER - Ministry of Energy and Resources MOHA - Ministry of Home Affairs MOT - Ministry of Transport SMESRS - Seoul Metropolitan Electric Suburban Railway System TPC - Train Performance Calculator FOR OFFICIAL USE ONLY

KOREA

KOREAN NAT.ONAL RAILROAD - REVIEW OF OPERATIONAL EFFICIENCY

Table of Contents

Page Nooe

EXECUTIVESUMMARY ...... iv - ix

I. THE TRANSPORT SECTOR ...... 1

A. Background ...... 1 B. Sector Issues and Objectives ...... *..4...... 2 C. The Bank's Role in the Sector ...... 3

II. KOREAN NATIONAL RAILROAD ...... *...... , 5

A. Organization and Management ...... 5 B. Institutional Development ...... 5 C. Railway Facilities . 6 D. Traffic ...... , 77.....* E. Future Focus ...... 9 F. Staffing and Training ...... 9 C. Railway Subsector Issues *...... 10

III. SEOUL-PUSAN CORRIDOR *...... * ...... 11

A. Importanceof the Corridor *...... 11 B. Passenger Train Operations ...... 11 C. Freight Train Operations ...... 12 D. Train Scheduling ...... ****...... *...... 13 E. Traffic Demand and Dist,ibution among Modes ...... 13 F. Capacity Limitations and Possible Solutions * ...... 15 G. Alternative Strategies ...... 16 H. Conclusion ...... *..*...... *. *..*. .... *...... 18

This report is based on the findings of a mission which visited Korea October 9-30, 1986, to review the operations of the Korean National Railroad and on discussions of a subsequent mission (May 3-10, 1987) with the Govern- ment of Korea, including the Korean National Railroad. The earlier mission comprised Messrs. M.S. Parthasarathi (Leader), R. de Silva (Senior Loan Officer), M. Melrose (Mechanical Engineer/Consultant),K. Watkins (Electric Locomotive Expert/Consultant),P. Reistrup (Operations Expert/Consultant), I. Silverman (Passenger Services Expert/Consultant)and B. Rollins (Financial Analyst/ConsuLtant). The later mission incItLdingMessrs. Parthasarathi, de Silva and W. Thompson (Consultant).

This document has a restricted distribution and may be used by recipients onlyin the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. -Iii

'ae No.

IV. FREIGH'TOPERATfONS AND FIXED INSTALLATIONS.... 19

A0 General ...... 0 0 . . ae0...... 00.0. 0 0.0 .. £9A B. Main TrafficCommodities and Services ...... 1.o9o9

C. Fixed Installations .0.....00 00 o0000 e0e0o000 o0 22

XD. Recomrnmendations ...... 0000,0.0..*,ooo.. *.o0..0..00. 24

V. ROLLItNGSTOCK AND WORKSHOPS...... 0 ...... oo...... 26

A. Introduction .. .oo...eooo*oo***e,e .000o e+ 262 6.. B. Locomotives.. . o.. .I 0...90.. .000.00.0000000...... 00.26 C. Passenger Cars ...... 00.0 ...... 0000000000 28

D. FreightCars ...... 00000. 0* .a0 000. 0.0.0..0..... 29 E. Workshops .e .0,0.....0.,.0O 30 F. Suggestions for Improvement/Rehabilitation...... 32 G. Summaryof Recommendationso...... O...... O. 34

VI. ELECTRIFIED OPERATIONS 000...... o 35

A. The Electrified Network .,...... 0...... 000.00.35 B. Operations on the Electrified Sections ...... 35

C. ElectricLocomotives 0000...... o . 00o0** 36 D. ElectricLocomotive Repair and Mai.tenance...... ,. 36 E. Unit ExchangeSystem o 38 F. Future Electrification ...... 40 G. Summaryof Recommendations#...... 40

VII. FINANCES ...... 41

A. Accounting ...... 41 B. Operating Results ...... 41 C. Traffic Costing e 42 D. Projections 43

VIII. ORGANIZATION AND MANAGEMENT IMPROVEMENTS ...... 45

A. KNR's Present Legal Status ... *s.....*....**.*.*.. o*. 45 B. Management Organization 45 C. Staffing, Trainingand Staff Development . 46 D. Commercial Approach ...... 47 E. Management Information System ... 48

IX. RECOMMENDED ACTION PLAN..* .... 51

ANNEX

1. Railway InvestmentProgram: 1987-91 I)r ot Fit, If. fII i I a i I c I, / TY I,T*' Imns ThVr iC' 2i;t s ielg r TrI£i ) o

I ';trainq in Si.Žouts llusareCri id)r' OR)aI y Sc:ui oI Dpi- t) ' iAJ

3 2 Kyuingbu Lince (Soout-Pusan) Rai) T(raffics -i.l Kyongbu Llne (Seoul-P'usan) PaqsengerTraffic (1974-85) ('000 p~?ts :1.4 Kyongbu L.ine (ScoulIl.usarn) 1eer Tra£ffic(19/4-85) (mill ion pas•senger-krmi) 'j - KyorngbuLine (Seoul-Pusani)Passetig,er Traffic (,1974-85) Average Distance (lun per passeniger) 3.6 KyoxigbuLive (Seoul-Pusan) Freight Traffic (1974-85)

5.1 lnventory of MoLive Power and Rolling Stock 5.2 Selected Operating Statistics

7.1 - Operating Statements 7.2 - Balance Sheets 7.3- Traffic Revenues and Costs 7.4 - Traffic Forecast: 1987-91 7.5 - Projected Operating Statement 7.6 - Projected Balance Sheets 7.7 - Projected Cash Flow 7.8 - Comparison of Cost and Revenue per Traffic Unit CHARTS

31024 - Ministry of Transportation Organization Chart 31116 - Korean National Railroad Organization Chart

?APS

20224 - Republic of Korea 20225 - SignallingSystem, Workshops and Sheds 20226 - Track Classification and Freight Traffic Density in 1985 KRI FA

'<1lsl 1;EJwI1NA -~ gl+.Vri*W 0i 0Is,ll'RA'0N.f EFFICIENCY-NA,

1 IP..,8. II.,nh mnilslol ivire (wtd the operational

1-.! ',-i li5 N!:iiIl 14Xji Iroad, particularly as it pertains to I I ) 1 I4I 'ui1 1>tUrIln cortidor where Lrack capacity has :1.v z : , Ki; eeli'dtrogc'mc'c1t.i to p' iotlb o additional container I W (K linpI I h. I (co a tr-ainr operat ions in the eastern Iod' U't w ,i. : aid! ! ' (3t3;,, hr t rr.n operat ions generally; (,t -]!I' 1 (I l1llt t t1u, titI i Imni oX l 613it'Sel and elcctric locomotives and I o 11W i'VCIecti;. Sttt sS udi ed briefly the need for 1 * .- .i i./!-i I,. <,)( 11W I5fIu1 rpl1,roVeqlcr1s t o c*nabi e KNR to operate on a more ;,!j orn2 rlln-. ;i rd KNR f i nanc cila. situat ion to identify areas N5si . illin K liUr -v )IliiI il as.[fl[flay bec! called for. 'lThe findings are

)If-I ^ne 3;0 N ioal I' Irod carried aJno9t 500 mil lion passengers ,3'1Ii r e i ghi in 1985 ovcr its network of 3,100 route-rou te - Ic.t.qv 1e i! l1or . nis a I 9 il o erated 1 8'J4 trains a day on he average, of 'ih, 1I3O9 h ;0n

3. KBNEKhas a well trained workforce and its track, locomotives and ro.ling stock are well maintained,with availability of 90% for diesel Iocomrotives, 87% for electric locomotives, 95% for passenger cars and 96% for freight cars; the latter two figures are very good and the others fair. Utilization of rolJing stock, hos-ever,is relatively low: under 200,000 km per year for diesel loconmotives;130,000 km for electric locomotives; 222,000 km for passenger cars; and only 32,000 km for freight cars.

4. The financial performance of KNR has bean mixed; what is potentially a profitable railway system is adversely affected by one large uneconomic element in its passenger services, the ordinary (Pidulgi) train service. Pidulgi trains are operated essentially at government behest to provide a minimum transportation service in thir.lypopulated areas; the service accounts for as much as 18% of KNR's cost but for only 5% of its revenues. In order to fully compensate for Pidulgi train losses, KNR would need a profit margin of 17% over costs on the rest of its railway operations. Excluding the Pidulgi trains, KNR's profit margin is only 8% because losses are also made on its baggage services and on certain of its freight operations, namely coal, fertilizer and military traffic. KNR has operating surpluses in its other passenger services--its air conditioned express (Mungunghwa) services (which - v -

producethe largestmargin of profit),the Saemaulor super-expresstrains, and the Tongil ordinaryexpress trains.

5. On the freightservices, container trains produce the biggestmargin of surplus,with generalfreight, oil, cementand ore followingin that order. Presentrail containertraffic is only some 10% of total domestic containertraffic, almost all of it in the Seoul-Pusancorridor, due mainly to capacity(train path) problems,resulting from the presentmethod of trgdin operations.

FutureOutlook

6. Railway traffichas maintainedquite steadygrowth over the last two decades,both passengerand freight,and KNR expectsthis trend to continue over the next five years. Passengertraffic is forecastto reach 700 million and freighttraffic 66 million tons by 1991, representingannual growth rates of 6% and 4% in passengersand freight,respectively. Although these appear to be modest projections,they should be reviewedcarefully and in more detail before '3R undertakesspecific investments.

7. In line with the present,some 50% of future passengertraffic and 40% of freighttraffic is expectedto be on the Kyongbu line in the Seoul- Pusan corridor. This is also the line which carriespractically all of KDR's presentcontainer traffic and the heaviestvolume of trains--over200 a day-- with line capacitybeing fully utilizedwith presentfacilities, equipment and operatingpractices.

8. Under the ongoing Pusan Port Project,facilities are being developed in Pusan to enable a growingvolume of containertraffic to move by rail. Also, under another ongoingproject--the Seoul-Pusan Corridor Project--a centralizedtraffic control systemis being completedon the KyongbuLine basicallyto replacean obsoleteand worn cut signallingsystem, but, as it does not providefor reverse signallingand bi-directionaltrain operations, it will only marginallyimprove line capacity.

9. KNR thus has a capacityproblem on its most importantline, and this is likelyto get worse with the forecasttraffic growth, unless some drastic steps are taken to deal with the situation. The most obvious solution--the constructionof another line--willbe both expensiveand time-consuming,made more difficultby the mountainousterrain on the route. Other approaches, mainly in operationaland marketingstrategies, will hence have to be explored both as short-termand as possiblelong-term solutions.

Areas for Improvement

10. Areas in which KNR can and shouldundertake improvements include the following: passengerand containeroperations in the Seoul-Pusancorridor (Kyongbuline); freightoperations, with particularreference to coal movementsin the east; and maintenanceand utilizationof its locomotivesand rollingstock (more particularlythe maintenanceof electriclocomotives). Improvementsin the above shouldbe accompaniedby: changes in KNR's legal statusand organizationalarrangements to enable it to respondspeedily and - vi - effectivelyto changesin the transportmarket, modifications in the internal organizationto respondto customerrequirements, and fuller use of the managementinformation system to optimizethe use of rollingstock. These measureswould also bring about an imptovementin rNR' finances.

(i) Capacityon KyongbuLine (Seoul-PusanCorridor)

11. Of the 250 trainswhich operatedaily on this route, some 180 are passengertrains, about 90 in each direction;most of these are express trains of one kind or another. Of the balance,some 16-18 are containertrains and the rest other freighttrains. Four expresstrains operatehourly throughout the day, in each direction,allowing freight train operationsmainly at night. The capacityconstraint on this route is thus restrictingKNR's ability to handle the growingand profitablecontainer traffic, as it wants to maintainthe presentlevel of passengerservice,, in terms of number of trains, speed and frequencyof service. As a consequence,growing numbersof containersare movingby truck betweenPusan and Seoul,with resultantloss of revenueto KNR, road trafficcongestion and added damage to highways.

12. While trainscannot providethe frequencyof serviceof trucks,some changescan be made in the schedulingof passengertrains to open up some slots for containertrains. The presentpassenger trains are each of a single class,with a Saemaul(super express) on the hour, two Mugunghwa(air-conditionedexpress) 15 and 45 minutes after the hour, and a Tongil train on the half hour. Three combinedclass trainsevery hour or a Saemaul train as now and two combinedMugunghwa-Tongil trains every hour, with a half-hourinter- val, could releaseone or two slots every hour for a containertrain. This would also improvecontainer train frequency,while maintainingthe frequency of Saemauland Mugunghwaservice and doublingthe frequencyof Tongil service. INR could undertakesimulation studies on a train performance calculatorto refinethese suggestionsbefore implementing them.

13. KNR shouldseriously consider operating multi-class passenger trains withoutreducing the frequencyof serviceon particularclasses of travel. Since the passengertrains are now relativelyshort and the locomotiveshave more than adequatepower, the same volumeof passengerseats can be offered even with a reductionof trainsfrom four to three per hour. Simultaneously the speed of container/freighttrains shouldbe increasedto be closer to those of passengertrains in order to avoid or minimize the passing or overtakingproblem. The overtakingproblem can be furtherminimized by prcvidingfor reversesignal operations in the CTC system being completedin this corridorunder the Seoul-PusanProject.

14. KNR shouldalso consideraugmenting freight capacity, on this as well as other lines,by addingmore cars to each freighttrain to optimizethe use of the power of locomotives,which have too much power relativeto present train weights (and lengths)and involveinefficient use of fuel, in particular in the case of diesel locomotives. It appea.sthat the main bottleneckon this line is the Suwon-Chonansection, and KNR should add a third track in this sectionto improveoverall line capacity(as, planned in its investment programfor 1987-91). - vii -

(ii) FreightOperations

15. Apart from the need to increasethe lengthof all freight trains, KNR shouldundertake specific improvements in its coal and container operations. KNR's coal operationsare inefficientbecause of the short length of trains,combination of efficientand inefficientfreight cars, poor coal loadingpractices, and a mixture of modern and antiquatedhandling facilities at the destination,where storagearrangements further complicate rail operations. Coal cars are also not loadedto capacity,increasing the cost per ton-kmof movement. KNR shoulduse the tariff system to encouragefull loading,improve handling facilities and practicesand modernizethe coal car fleet,withdrawing unsuitable cars from coal service.

16. For containertrainn, KNR should initiallyacquire 100 high-speed, light-weightcar sets that would reduce tare weight, permithigher-speed operationsand improvecar utilizationand turnaround. It shouldprovide adjustablefixtures for the new freightcars to enable the handlingof containersof varyinglengths. The car sets would cost approximately US$13 million.

17. For freightservices other than coal, in which KNR now incurs losses,viz. grain,fertilizer and militarytraffic, the presentlosses could probablybe eliminatedwith the operationalimprovements suggested in this study,all the more so as rail transporthas a natturaladvantage in bulk movementsover even distancesof 200-300km. If losses still persist,and the Governmentwants loss-makingservices to be continued,it shouldgive specific subsidiesbased on economiccriteria to ensure that KNR providesthe services as efficientlyand cheaplyas it can.

(iii) Locomotiveand Rolling Stock Maintenance

18. The other major area which needs attentionis the maintenanceof Locomotives (diesel and electric) and passenger and freight cars. While KNR's presentpractices in this area are superficiallygood and produceacceptable results,these need to be modernizedby the introductionof a need-based(vs. the presenttime-based) maintenance schedule in order to avoid unnecessaryor over-maintenance.A need-basedsystem would not only redu..ein-shop idle time of locomotivesbut would also save cost in labor and materials. For example, the savingsin lubricantsalone for the locomotivefleet could amount to US$200,000per year. KNR shouldalso introducethe unit exchangesystem for repairsand overhaul,in order to get the locomotives/passenger/freightcars back in operationas quicklyas possibleinstead of keeping them disabledand idle in the workshop,while a part or componentis being repairedor overhauled.

19. While introducingthe modern practicesrecommended, KNR should also considerconsolidating major maintenance/repair/overhaulwork in fewer workshops in order to minimizethe investmentneeded in parts and componentsand to ensure better qualitymaintenance through greater specializationand better supervision. For example,the new Taejonworkshop, one of the most modern in the world, should handleall passengerand freightcar heavy overhaul. This shop now works only one shift and handlesalmost orne-halfof KNR's freight and - viii -

passengercar heavy repair. With the introductionof the unit exchangesystem and of need-basedmaintenance schedules, it shouldbe able to handle all passengerand freightcar heavy repair. Such a step would also improve the utilizationof this workshop'sexcellent facilities while enablingthe closing down of some of the older, less suitablefacilities.

20. The above modificationscan be accomplishedwith some improvements to the workshopsat Seoul and Pusan for maintainingelectric and diesel locomotives,respectively, to provideremanufacturing facilities, spares for the unit exchangesystem and trainingand technicalassistance to KNR staff in introducingand operatingthe new system,for a total outlay of US$30 million or so.

21. The introductionof the suggestedmeasures would reduce in-shoptime of diesel locomotivesfrom 30 days a year on the average to 15 days, resulting immediatelyin raisingavailability by 4-5%, of passengercars by 2-3% and of freightcars by 1.0-1.5%. In raw slumbers,this would amount to KNR having 20 additionaldiesel locomotives,50 more passengercars and 200 extra freight cars, valuedat a minimumof US$100million in new investment.

22. Turningto electriclocomotives in particular,KNR relies on outside servicesfor overhauland repair of major parts of these units. As the outsideprovider of these servicesis equippedto producenew equipmentrather than for repairand overhaulof old parts, the cost of maintenancehas become unnecessarilyhigh (sincea substantialnumber of units are now consideredand declaredunrepairable).

23. A new approachto electriclocomotive maintenance would produce even more dramaticresults, with availabilityimproving to 95%, amountingto an extra 7 locomotivesin the fleet,worth US$15 million. This would require the establishmentof a unit exchangesystem (as for other rolling stock)and of a unifiedmaintenance facility for all electriclocomotives and componentsat a total cost of US$10 million or so.

(iv) Other Areas

24. Since ordinarypassenger train services,especially branch line services,can cover barely25% of costs, KNR and the Governmentshould explore alternativesto rail service,including KNR itself providingbus service throughcontract with private bus operators,if necessaryinitially at lower tariffsand greaterfrequency than now, until the publicgets used to the absenceof rail service. A similarapproach should be adoptedfor baggage/ parcelsservice.

25. In order to respondeffectively to the growingcompetition from road transport,as well as to give KNR greater freedomin staffingand salaries, the Governmentshould, with the implementationof the proposedmeas-ures, con- vert KNR into a semi-autonomousentity from its presentstatus as a government department. At the same time, KNR shouldconsider establishing another Deputy Administrator'sposition so that one Deputy can supervisethe nonoperating departmentsand the other the operatingdepartments. This would improve the managementof the railway,as the span of responsibilityof the present single Deputy is too wide and unwieldy. - is - Conclusion

26. WhileKKR is an efficientrailway in many aspectsand in termsof its performancerelative to its methodsof operationand maintenance,and to many otherrailways in the world,there are someareas where KNR's level of technology,standards and facilitiescould be raised,with substantialbene- fitsin operatingand maintenancecosts, overall level of service,and finan- cialviability. It must be emphasizedthat, even with the improvements resultingfrom the suggestionsmade in thisreport, some increase in the tariffson certainpassenger services and commoditiesmay be requiredor, in the alternative,specific government subsidies to coverthe losseson those services. 27. In the Seoul-Pusancorridor, provision for limitedreverse-signal, bi-directionaltrain operations and extensionof passingloops and station platforms,could be made on a modestscale for a start,to be extendedlater as needed. At the sametime KRU shouldinitiate the purchaseof 100 setsof light-weightcontainer cars at an estimatedcost of US$13million and the installationof a modernMIS for improvedcar controland utilization. 28. It is essentialthat KNR takesimmediate steps to expandand exploit fullya modernMIS, so thatmanagement of all aspectsof the railway'sopera- tionsand maintenancewill be as effectiveas possible.For thispurpose, it willneed expert assistance, possibly from a modernoperating railway which currentlyputs MIS to comprehensiveuse, includingoperations and maintenance planningand management.The benefitsfrom these improvements would be even more significantfor the futureof KNR. For instance,the reductionin operatingcosts for coal and containertraffic would amount to 432 and 32X, respectively,for an annualtotal of aboutUS$50 million (W 45 billion)for 1985traffic levels.

29. To be ableto adaptand implementefficiently the suggestionsfor improvementcontained in thisreport, selected middle level KNR personnel shouldundergo a periodof observation/study/trainingin foreign railways that have successfullyadopted the recommendedtechniques and practices. 30. Whilesome of the suggestionsin thisreport may needfurther study and refinement,many couldbe implementedwithout the need for muchprepara- torywork and at modestcost. The investmentrequirements for implementing the suggestionsis estimatedat approximatelyUS$65 million, excluding contingencies.The benefitsfrom thesein justcapital cost savingsfor new equip- mentalone would amount to cverUS$100 million, in additionto substantial savingsin annualrecurrent costs. I. THE TRANSPORTSECTOR

A. Background 1.1 Throughoutmuch of the past 20 years,the Koreantransport system has been strainedby the demandsof rapideconomic growth and has required massivepublic sector investments in infrastructure.The Governmentallocated up to 232 of its totalcapital expenditure to expandand modernizetransport infrastructurefrom 1967to 1977tapering down to about 15% in the Fourth (1977-81)and FifthPlans (1982-86). The investmentallocations increased sharplyin currentprices from W 150 billionin the SecondPlan (1967-71)to W 2,800billion in the FourthPlan, with actual expenditures even higher. In the FifthPlan period, in,estments in transportation(public and private) increasedto aboutW 4,000billion and remainedclose to 142 of the total plannedoutlay, as in the FourthPlan. Duringthis period,investments in subwaysand aviationabsorbed a largerportion of totalfunds, along with vehiclesand shipping.Hence, real investmentsin the railwaysystem, roads and portinfrastructure increased by lessthan 2.02 overFourth Plan outlayi. The SixthPlan (1987-91)allocation for sectorinvestments is expectedto be at aboutthe samelevel. Investmentshave beenconcentrated on the Seoul- Pusanaxis where most iadustrialdevelopment is takingplace, in the north- easternand southeasternparts of Korea. Futureefforts will focuson achievingbetter regional balance and easingcongestion in and near t0a major cities. 1.2 Abouthalf of all passengertraffic is in urbanareas. Interna- tionaltrade is servedalmost exclusively by air for passengersand by sea for freight.Road facilitiesand transportavailability could be improvedin ruralareas, on whose developmentgreater emphasis will be placedduring 1987-91.Better planning and improvementof suburbantraffic flows is needed, especiallynear the largercitie^. The furtherdevelopment of portfacilities couldbe concentratedin a few locationswith good scopefor futuredevelopment. Thereare alsoopportunities to achievegreater efficiency in railwayservices and considerablegains in transportproductivity by exploitingfully the comple- mentarityamong modes. 1.3 The Governmentof Korea's(GOK) basic objective in the past has been to increaseand modernizethe capacityof the transportsystem in linewith projectedtraffic growth and to avoidmajor bottlenecks. This objective was largelyachieved. The presentsystem is reasonablywell balancedand thereis verylittle uneconomic allocation of trafficamong the variousmodes. Invest- mentsin transportationhave been linkedto broaderconcerns in Korea's spatialand economicplanning. For example,considerable efforts have been made to developnew industrialcomplexes in coastalareas, to takeadvantage of Korea'snatural harbor potential, and to exploitlow-cost coastal shipping whileavoiding excessive congestion on roadand rail. Projectsare now better designed,construction quality has improvedwith the rapidexpansion of the constructionindustry, and maintenancesystems have beenestablished for the roadnetwork and strengthenedfor the railways. - 2 -

1.4 Investmentsin transportationinfrastructure have been complemented by effortsto improvethe efficiencyof the transportationsystem throughthe establishmentand strengtheningof institutionsto plan, construct,maintain and operatethe facilitiesand services. In the public sector,institutions such as the Korean NlationalRailroad (KNR),the Bureauof PublicRoads (BP'R) in the Ministryof Construction(MOC), the Korea Highway Corporation(KHC), and the Korea Maritimeand Port Administration(KMPA) have been established and/or strengthened,in many instanceswith increasingfinancial and managerialautonomy and responsibility.In the private sector,a highly efficientcontractor system has evolvedfor civil works which reflectsboth the insistenceon competitivebidding in the award of contractsas a matter of policyand the large volume of constructionthat has been carriedout in Korea during the past 20 years. There are now some 500 firms capableof handlinga broad range of publicworks.

B. Sector Issuesand Objectives

1.5 Issues. In articulatingthe major Sixth Plan objectivesin the transportsector (para. 2.6), the Governmenthas been responsiveto the recommendationsmade by the last major Bank transportsector review mission. The mission'sTransport Sector Issues SurveyReport (No. 4423-KOdated December27, 1983) concludedthat there was considerablepotential for increasingthe productivityof existingtransport facilities and equipment, althoughmost of the investmentsin the Fifth Plan period pursueddevelopment prioritieswhich were appropriate. With the increasinglycomplex traffic patternsand higher trafficdensities, the growingrequirements for maintenanceand the need to conserveenergy, the report identifiedan even greater need to maximizeefficiency in this capital-intensivesector, and mentioned three major areas requiringspecific attention: (a) planning;(b) regulation and pricing;and (c) energy conservation.

1.6 Bank-assistedprojects currently under implementationcre addressing the above issues. Noteworthyare measuresintroduced under the ongoing HighwaySector Project (2392-KO). Transportplanning, including planning for roads, is mostly done in the contextof five-yearnational development planningexercises. To facilitateplan preparationfor 1987-91,a road networkmaster plan study was carriedout under the Highway SectorProject, on the basis of which a highway sectorplan was preparedand incorporatedin the nationalplan. An integratedhighway investmentplan was also preparedunder the above projectand, henceforth,budget funds appropriatedfor each road agency would closely supportplan priorities. Studieswere also carried out under the Highway Sector Projectto liberalizethe sector regulatoryframe- work, and regulationsconstraining the efficiencyof the truckingindustry, e.g.,minimum fleet size for licensingpurposes and regulationsgoverning individuallicenses, have been removed. The potentialfor improving efficiencyin road transportthrough use of road and intermodalfreight terminalshas been reviewedand appropriatedecisions are being taken.

1.7 In regard to improvingtransport energy efficiency,under the HighwaySector Projectthe Governmentdecided that the Ministryof Energy and Resourceswill coordinate,manage and monitor activitiesfor conservationof - 3 - energyuse. A transportenergy savingplan has been preparedto establish energyconservation practices. Under it, the largestroad and marine transportcompanies, the airlineand KNR have preparedfive-year energy conservationprograms; energy audits have been instituted;the Korea Institute for EnergyResearch has made a technologicalassessment of the potentialfor installingappropriate fuel conservationdevices and adoptingproper techniquesfor operatingtrucks and locomotives;driver trainingand public informationprograms have been undertaken;and a programlaunched to train staffof transport-relatedagencies in the techniquesof energy conservation analysisin the sector.

1.8 Objectives. The Government'sbasic policy focus in the transport sectorduring the Sixth Plan are to (a) increaseefficiency, capacity and quality;(b) providefacilities that contributeto greaterequity among regions;and (c) improveadministration. The Governmentseeks to achieve the above objectivesthrough: a more rationaldistribution ot the means of transportation;efforts to achievemaximum utilizationof existingfacilities, optimizenew investmentsand energyuse. and increaseprivate sectorparticipation in the sector;and investmentsaimed at improvingtransportation in the largestcities and increasingthe total of paved roads to enhanceall-weather market accessibilityto small citiesand rural areas.

C. The Bank's Role in the Sector

1.9 The Bank's past involvementin the transportsector has been substantial. Since 1962, the Bank Group has assistedKNR throughnine railway projects(loans/credits totalling US$501 million), MOC and MOHA throughsix highwayloans (US$690million), and KMPA throughthree port loans (US$288mil- lion). KNR and KMPA were also assistedthrough a multimodalproject (US$122million). Of these 19 orojects,14 have been completed.

1.10 The Bank'spolicy dialogueis being strengthenedthrough increasing emphasison sectorand subsectorwork directlylinked to transportlending in Korea. This approachwas initiatedin 1984 with a Highway SectorProject (Loan 2392-KO)which helped to deepenand broadenthe Bank's involvementin the road subsectorby extendingassistance to MOC, Home Affairs (MOHA), Transport(MOT) and Energyand Resources(MOER). That projectprovides a frameworkfor thece agenciesto improvetheir planningand coordination,to conserveenergy, and to reduce the over-regulationof land transport. For railways,the Bank has traditionallymade sector-typeloans, financingtime slicesof KNR's investmentplans and maintainedan active dialogueon its financialsituation, investment plans, and level and structureof tariffs.

1.11 The recentlyapproved Seoul-Pusan Corridor Project (Loan2600-KO) continuesthis involvementin the last years of the Fifth Plan. For ports, Bank assistancehas been directedat the modernizationand expansionof faci- litiesto supportKorea's export-led development. Containerizationwas intro- ducedat Pusan under two completedport projects(Loans 917-KOand 1401-KO) and would be developedfurther under an ongoingproject (Loan 2726-KO),which will also addressthe need to furtherimprove inland container handling operationsto increasecontainer transport by the railwayas the more economic mode for such traffic,especially in the Seoul-PusanCorridor. Measureswould - 4 - be taken to improvethe length,speed and frequencyof containertrains on the Seoul-Pusan(Kyongbu) line and to integratethe operationsof the Pugok rail terminalnear Seoul (builtunder the SecondPort Project)with the port containerterminals. A businessoriented organization would be established under the projectto manageport and rail containerservices and to market them to users. These improvementsare expectedto help reducerail costs (and tariffs)for moving containersbetween Seoul and Pusan.

1.12 Besidesthe above sub-sectoroperations, the Bank is assistingthe Governmentin developingmulti-modal projects. The first was the Coal and CementDistribution Project (Loan 2267-K0,already referredto) approved in 1983. The projectinvolves railways, ports and inland terminalsand will help improvethe handlingand distributionof coal at Inchon port. It was expected that this would be followedby projectsdirected toward increasingthe capacityof the transportsystem in certainhigh priorityareas and corridors. A multimodaltransport study for Kyonggiregion has identifiedpriorities in strengtheningthe expresswaysand suburbanrail networksto meet the very high transportdemand in the suburbsof Seoul. These needs will be addressed throughthe proposedKyonggi Regional Transport Project.

1.13 Anothermulti-modal transport study was carriedout during 1983-1985 to evaluatethe feasibilityof a high speed rail train in the Seoul-Pusan corridorthat would run on a separatededicated track togetherwith the relatedimprovement of road transportto providetransport complementarity betweenrail and road. The study was financedunder the SeventhRailway Project(Loan 1836-K0of April 1980) and was carriedout by Louis Berger Internationalin associationwith Korea Institutefor Human Settlements (KRIHS),KAMPSAX and HyundaiEngineering. The study was carriedout in two phasesand consistedof a review of the Long Term TransportNeeds of the Seoul Pusan Corridor(1983-84) and the FeasibilityStudy of a High Speed Line becweenSeoul and Pusan (1984-85). The study concludedthat a high speed train could technicallybe operationalby 1992-93. The Governmenthas decided that the investmentprospects would be consideredduring the next Plan period commencing1992. - 5 -

II. KOREAN NATIONAL RAILROAD

A. Organizationand Management

2.1 KNR was establishedon December31, 1961, as a quasi-businessenterprise owned by GOK and controlledby its MOT (Chart31024). The initial capitalcomprised railroad assets, net of certainliabilities, transferred at estimatedfair value as of January1, 1962. Actual title to re&l property vests in the Government. By statute,KNR has the right of use or disposition of propertyeither originallytransferred to it or later acquired,and the right to receiverental or sale proceeds. Railway land may be appropriatedby the Governmentand dedicatedto certainpublic uses without paying any compen- sationto KNR.

2.2 KNR's hierarchyfollows the standardorganizational structure of the Government(Chart 31116). The Administratorof KNR is appointedby the Presidentto performthe functionsof GeneralManager. The Administratorhas full responsibilityfor overallKNR operationsbut only limitedauthority over KNR organization,personnel administration and financialmatters. The Administratoris assistedby a DeputyAdministrator who comes from within KNR and is in chargeof day-to-dayoperations. In actual practice,the Administratorand his Deputy delegateresponsibility and authorityto various DirectorsGeneral to supervisevarious bureaus or offices. KNR's management enjoys reasonableindependence in day-to-daymatters, but changescould be made to furtherimprove its overalleffectiveness. In addition,the eventual transformationof KNR from a Governmentagency into a public corporationwill requiresome changesin the currentorganization to handle operationson a commercialbasis (see ChapterVIII for furtherdetails).

B. InstitutionalDevelopment

2.3 KNR's managementhas been generallysatisfactory as reflectedin its high operatingefficiency. However,in the latterhalf of the 1970s, the Governmentfelt that some improvementin KNR's organizationwas desirableto rationalizemanagerial functions and responsibilities.There was also a need to reinforceKNR's capacityfor financial,economic and investmentplanning, organizationand financialdecision-making needed for dealingwith the growing competitionfrom other modes and adaptingto rapid changes in trafficdemand and/oreconomic conditions. The Government,therefore, utilized funds from Loan 1101-KO(Fifth Railway Project) to carry out, throughconsultants, a comprehensivemanagement study, which was completedin late 1979.

2.4 The study'smain conclusionwas that KNR shouldbe gradually transformedinto a publiccorporation to give it the necessarymanagerial and financialfreedom to fully play its role as a competitivecarrier. KNR was to be preparedfor this change by short and medium term measuresfocussing on: (a) the establishmentof a managementinformation system and of an aggressive marketingorganization within KNR; (b) the strengtheningof KNR's capability in the fieldsof economicanalysis for investmentplanning, financial management and accountingprocedures, with specialemphasis on implementationof performancebudgeting and incrementallong-term variable costing; and (c) progressivereorganization of KNR's management. - 6 -

2.5 Duringnegotiations on the SeventhRailway Project in early 1980, it was agreedwith the Governmentthat KNR would becomea public corporationby January1, 1987, coincidingwith the end of the Fifth Plan period. A time- table of short and medium-termmeasures necessary to achievethis transforma- tion was also agreed,in particulardetailed short-term measures to improve planningand budgeting,management information, finances and costing, commercialand tariffmeasures; development of a computerizationprogram; reorganizationof personnelmanagement; and a trainingprogram.

2.6 Implementationof the above measuresstarted in 1983, followinga number of delaysand a periodof instabilityat KNR due to severalchanges in top management,and the followinghave been introduced: (a) a costingsystem; (b) commercialaccounting; (c) electronicdata processing;(d) investment planningand budgetingprocedures; and (e) periodicseminars for management training. In August 1984,a new time-tablewas preparedfor implementing:he managementimprovement program, which included: (i) strategicplanning; (ii) implementationof a cost-basedtariff system;(iii) performance budgeting;and (iv) a managementinformation system. These have since been substantiallyimplemented.

2.7 In April 1985, duringnegotiations on Loan 2600-K0 (Seoul-Pusan CorridorProject), the Government'sundertaking on the conversionof KNR into a publiccorporation by January1, 1987, was discussed. The Government explainedthat, due principallyto KNR's financialposition and the need for continuingGovernment financial support, its policy in this regard was still under evolution. KNR's prospectivefinancial performance would be a key factor in the Government'sprogram for changingKNR's legal status. It was, therefore,decided that the timingof KNR's conversioninto a public corpo- rationwould be includedin a study of ordinarytrain servicesto be commis- sionedby KNR under the Seoul-PusanCorridor Project in its efforts to improve profitability;the study is now underway. The processof gradual change to a publiccorporation, now plannedtentatively for completionin 1991, should serve to strengthenthe railwayin the next decade, and facilitateefforts to eliminatethe remainingoperating deficit. Determinationof staffinglevels and budgetsfree of Governmentinvolvement will be importantto KNR in achievingfinancial viability.

C. RailwayFacilities

2.8 The KNR systemconsists of 3,100 route-kmof standardgauge (1.435m) and 47 km of narrowgauge (0.76 m) lines;760 km are double track and the remaindersingle track. The major sectionsof double track line are the Kyongbuline (Seoul-Pusan,445 km) and the Chungbukline (Chochiweon- Bongyang,110 km). About 370 km of single track industriallines serving the northeastcoal and cement producingareas are electrifiedas well as about 100 km of the Seoul MetropolitanElectric Suburban Railway System (SMESRS) linkingSeoul with Inchonand Suwon.

2.9 Centralizedtraffic control (CTC)has been installedin the Seoul urban area and on the heavilyused electrifiedsingle track lines. CTC is being installedon the Chechon-Cholamsections of the TaebaekLine (about 127 km) under the Coal and Cement DistributionProject (2267-K0)and on the - 7 -

KyongbuLine (from Suwon to Pusan) under the Seoul-PusanCorridor Project (Loan 2600-KO).

2.10 KNR's motive power fleet at the end of 1985 comprised47i diesel and 90 electriclocomotives and 138 diesel railcars. It also owned 408 electric railcarsto providecommuter services in the Seoul area. The fleet is modern and in good condition. The rolling stock comprisedabout 2,200 passengercars and about 16,000freight cars, practicallyall suppliedby domestic industry. KNR maintainsa number of workshopsof which the main ones are at Seoul (electriclocomotives, and diesel and electricrailcars), Taejon (passenger and freightcars), and Pusan (diesellocomotives, and passengerand freight cars). Steam locomotiveshave been completelyphased out.

D. Traffic

2.11 In the past two decades,although the railway'sshare in the intercity transportmarket has declined,total trafficcarried by it, both passengerand freight-km,has grown steadily. Rail passenger-kmgrew from 8.7 billionin 1966 to 16.6 billion in 1985 and freightton-km from 5.5 billion to 12.3 billion.During this period,its market share declinedfrom 42% of passenger-km and 82% of freight ton-kmto 22% and 40%, respectively,while the highwayshare grew to 76% and 23%, respectively(Tables 2.1 and 2.2). Highwaysthus handled the major part of the growth in freightas well as passengertraffic which occurredduring this period,due partly to the improvementin the length,coverage and conditionof the highwaynetwork and partlyto the increasingvolumes of short-distanceand high-valuetraffic particularlysuited to trucks. That the railwaynevertheless maintained steadytraffic growth indicatesthat it continuesto have an importantlong- term role in the Koreaneconomy.

PassengerService

2.12 KNR offers four classesof passengerservice. The premier service is the Saemaulclass or Blue Train. The secondclass air-conditi.onedexpress, or Mugunghwaclass, is the fastestgrowing component of the service. Tongil, or third class service,is being progressivelyair-conditioned. Ordinary trairsof Pidulgiclass operatewith older non-air-conditionedequipment. These are not a major factoron the main lines,and are operatedmainly on the branch lines.

2.13 Passengertraffic on the Seoul-Pusancorridor is by far the most profitablecomponent of KNR's traffic. All other passengerservices show a loss with two exceptions: the Seoul metropolitanarea commuterservices and the Mugunghwatrains which are profitableover the entire network. Ordinary (Pidulgi)trains representa drain on KNR's finances. Passengerrail service is in directcompetition with express buses on most routes. Domesticair competitionis insignificantexcept in the Seoul-Pusancorridor where Korean Air offers an hourly service. While ownershipof privateautomobiles is growing,the absolutelevel is still very low and cars do not constitutea viable alternativefor much of the population. - 8 -

2.14 In 1985 KNR's inter-citypassenger services carried 146 million passengersan averagedistance of 114 km, totalling16.7 billion passenger-km. In recentyears, inter-city traffic has declinedfrom the peak reached in 1980 (Table2.3). All of the decreasewas due to a decline in ordinary train passengersfrom the peak of 125 million in 1980 to a 16-year-lowof 71 million in 1985. A reversetrend occurredin the case of the Mugunghwa(limited express)service which gained nearly 17 millionriders in the 1980-85 period. These trendsmay be attributedto rising income levels and mobility in Koreawhich have led to an increasein the perceivedvalue of time, with peopleable and willing to pay more for better service.

2.15 Overallpassenger-km declined by only 7.32 over the period 1980-85 in relationto the declineof 20% in the number of passengers. This again may be attributedto the qualitativechange in KM ridership--thepartial substi- tutionof expresspassengers who undertooklonger journeysaveraging 206 km in 1985 for ordinarypassengers who averagedonly 47 km. Consequently,the decline in overallpassenger-km actually conceals an importanttrend, namely, that KNR enjoyeda 7% p.a. growth in passenger-kmfor express (Mugunghwa) serviceduring 1980-85. The higher Saemaulfares relativeto Mugunghwatrains (or buses)partly explains the declinein the Saemaultraffic from 2.4 million passengersin 1979 to 2.1 million in 1985.

2.16 KNR's Seoul MetropolitanElectric Suburban Railway System (SMESRS), which startedservice in 1974, grew at an annual rate of 7.52 p.a. in terms of passenger-kmduring 1980-85,representing a good, sustainablerate of growth.

FreightTraffic

2.17 Freighttraffic experienced a downturnduring the 1980-81recession, but the recoverysince 1982 has been fairlystrong, averaging 3.42 per annum. KNR is meetingcurrent demand for freightand is increasingboth tonnagecarried and ton-kmsgenerated, reaching over 55 million tons and 12 billionton-km in 1985 (Table2.4). AlthoughKNR has a static route structurein contrastto a growinghighway network, it has a sound freight trafficbase to undertakeimprovements, in relationto both profitabilityand tonnagecarried.

2.18 Althoughcoal (24.4 milliontons in 1985) is KNR's highest volume freightmovement, and has been increasingby about 2.6% per annum, it was handledat a loss of 4.5 billionwon that year, mostly due to inefficient handlingand transportation.Cement traffic(11.2 million tons) has been steadilyincreasing, generated a profitof $0.5 billionwon in 1985, resulting mainlyfrom improvedefficiency and largerbulk movements. KNR's ore tonnage and ton/kmexperience show continualbut more gradualgrowth than for coal and cement, Althoughoil is the fourthlargest commodity carried by KNR, volumes and ton/kmare staticreflecting Government policy to reduce import depen- dence.

Containers

2.19 Containerizedcargo has grown more rapidlythan other freight, averaging132 p.a. between1976 and 1985, when Pusan port handled more than 9 -

1 millionTEU, over 90% of Korea'scontainer movements. Some 38% of this containertraffic at Pusan originatesin or is bound for Seoul and another 32% is accountedfor by areas around Pusan. In 1985, KNR handled only one-fifth of the containertraffic between Pusan and Seoul; the balancewas carried by road. During the first half of 1986, KNR increasedcontainer traffic more than two thirdsover the 1985 level. KNR is jointlyresponsible with KMPA for executinga plan of operationsunder the Pusan Port Project (Loan 2726-KO) which is aimed at furtherincreasing KNR's share of containermovements, its area of greatestfreight growth potential.

E. FutureFocus

2.20 The Sixth NationalPlan has recognizedthat the share of passenger and freighttraffic carried by KUR has declinedwith the growth of air and road transportand that, with increasein personalincomes, passengers are demandinggreater comfort and higher speed. The EconomicPlanning Board (EPB) has identifiedincreased transportation efficiency, enhanced quality and capacity,as well as the need to achievebetter regional balance in the provision of facilities,as major sectorpolicy objectives. Policy directions point towardsa more rationaldistribution among transportationmodes, e.g., long distancetransport of heavy freightby rail and sea, and emphasizethe need to achieveoptimum utilization of existingfacilities, minimize new investmentsand expandopportunities for private sectorparticipation in providingservices.

F. Staffingand Training

2.21 KNR employsabout 40,000 staff,of whom about 34,5Q0 are permanent employeeswith Governmentcivil servicestatus. The rest comprise semi- permanentand temporarypersonnel used in workshopsand on track works on a seasonalbasis. Governmentlegislation regulates the size of KNR's workforce and the number of personnelwithin each job line and pay classification.

2.22 The civil servicesystem imposesstrict limitations on the flexibilityof KNR to maximizethe utilizationof its managementstaff, to rewardand disciplineits employees,and to recruitand retain highly skilled personnel. These are problemsendemic to civil service systemseven in most developedcountries and are not unique to KNR or Korea. (See also ChapterVIII.)

2.23 Trainingfacilities comprise a RailroadSchool whiere courses are offeredto recruitsat both high schooland collegelevels, and a training centerwith regionalbranches at which varioustypes of training (including managementdevelopment) are providedto currentstaff (see ChapterVIII for details). CompletedBank-assisted projects have financedequipment and materialsfor practicaltraining and overseastraining in specializedsubjects for selectedstaff. - 10 -

G. RailwaySubsector Issues

2.24 The last Bank transportsector reviewmission (para. 1.5) discussed in its report the major issueswhich needed to be addressed in the railway subsectorduring the Fifth Plan period (1982-86). Its commentsprovide an appropriateframework for identifyingthe issues to be addressedin this report.

2.25 The strategyto give priorityto long-distancepassenger and bulk freightservices, which KNR can serve best, along with developmentof SMESRS to providelinks with the subway,was commended. The report recommendedthat a more commercialattitude should be promotedin KNR to deal with the growing financialdeficit. It was suggestedthat KNR should develop productive operationssuch as marketingdoor-to-door services for containers,steel and bulk products.

2.26 It was furtherrecommended that the Governmentought to fully compensateKNR for uneconomicservices performed at Governmentbehest; that tariffsfor "ordinary"passenger trains should cover total operatingcosts on the same basis as other traffic;and that preferentialtariffs should be introducedto attractpassengers to use the commuterservices during off-peak hours or a surchargelevied to dissuadethem from increasingcongestion during peak hours. It was pointedout in the report that KNR is requiredby the Governmentto complywith tariffsset by EPB and to keep operationalsome branchlines that KNR would rather close. KNR was also under pressureto investmore in expandinghigh-speed passenger services than was believed to be justified.

2.27 It was concludedthat Korea faced the difficulttask of institu- tionalizinginter-modal planning and coordinationamong agenciesresponsible for varicus,often competing,modes. The mission felt that only EPB could realisticallyperform such a functionand that strengtheningMOT's coordi- natingrole would be less productive. The report was criticalof regulations imposedby the Governmentlimiting the road carriersentering the railway yards and recommendedthat railwayterminals be opened to all shippersand commercialtransport firms deliveringto or collectingfrom KNR.

2.28 On energy conservation,the report commentedthat, while rail transportwas fairly energy-efficient,there was room for improvement;e.g., the typical3,000 hp KNR locomotivewas underutilizedgiven the average 10-12 car trains. A prime area for efficiencyimprovements was operating procedures,particularly train dynamics.

2.29 The objectiveof the current study is to assist KNR in formulating an operational,maintenance and investmentplan to help carry out its respon- sibilitiesin the sector,optimally and at least cost. For this purpose it is necessarythat KNR's prospectiverole in the transportationsector be defined givingrecognition to the railway'scomparative advantages. It is proposedto focus in this report on a few selectedarL*s which have the greatestpotential for substantial,positive impact on KNR's operationsand financesand on the Koreaneconomy generally. - 11 -

III. SEOUL-PUSANCORRIDOR

A. Importanceof the Corridor

3.1 The Seoul-Pusancorridor (Kyongbu Line) has the highest train densityof any route in the KNR system. Between Seoul and Taejon, intercity trains to the southwesternportion of the countryshare the same trackageas the Kyongbu line trains,raising the density to approximately90 intercity passengertrains daily in earh direction. South of Taejon there are approximately 55 passengertrains in each direction,rising to 65 south of Tongdaegu. In addition,some 60 freighttrains operate daily in the corridor,making in all a total of over 200 trainsdaily in both directions(Table 3.1). In 1985, this two-trackline carried68.2 millionpassengers and 21.8 million tons of freight,about 50% and 40%, respectively,of KNR's total traffic(Table 3.2).

B. PassengerTrain Operations

3.2 As elsewhereon KNR, four classes of passengerservice are offered on this route. The premierservice is the Saemaulclass or Blue Train (de luxe) super express. Saemaultrains make only two intermediatestops at Taejon and Tongdaeguand take only 4 hours and 10 minutes betweenSeoul and Pusan (107 km/hr averagespeed). All Saemaultrains carry a dining car and regularcoaches (56 seats). Train serviceis essentiallyhourly from 8 a.m. to 6 p.m. with one gap at 9 a.m. Two Saemaultrains also operateto Kyongju, one of which fills in the 9 a.m. gap as far as Tongdaegu.

3.3 The first class air conditionedexpresses, or Mugunghwaclass, are the fastestgrowing component of the KNR passengerservice. These trainsuse equipmentseating 72 passengersper car, althoughsome trainscarry "special" cars featuringslightly lower density. Dining car serviceis offeredon approximatelyone half of the frequencies,with cart snack serviceon all trains. Two of the overnighttrains carry sleepingcars. The Mugunghwa trainscomplement the Saemaulservice with departuresgenerally at 15 minutes and 45 minutes after the hour. These operatebetween Seoul and Pusan in 4 hours and 50 minutes (92 km/houraverage speed) with between10 and 13 inter- mediate stops. In additionto the 21 Seoul-Pusantrains, there are nine Mugunghwatrains between Tongdaegu and Pusan.

3.4 The secondclass Tongil servicealso operateswith equipmentseating 72. KNR has been followinga policy of air-conditioningthis servicein de- ferenceto the warm summerclimate, but some non-air-conditionedcars are still operated. Cart snack serviceis offeredon these trains. Tongil trains generallydepart on the half-hourfrom Seoul and Pusan; they make approximately 17 stops and cover the distancein 5 hours and 20 minutes (83 km/hr). Severalovernight Tongil trains operateplus additionaltrains in the transi- tion periodsin the morningand evening,with a total of 13 daily between Seoul and Pusan. - 12 -

3.5 Ordinarytrains of Pidulgi(third) class operatewith older non-air- conditionedequipment. These trainsare not a major factor in the main markets,with only one overnighttrain betweenPusan and Seoul. However, 14 trainsoperate over shortersegments of the corridor,serving smaller stationsand providingcommuter/shopping service to intermediatepoints. These servicesaccount for approximately11% of the train-kmsin the corridor.

3.6 Accordingto the latestavailable data, passengertraffic on the Kyongbuline is by far the most profitablecomponent of KNR's total traffic mix. Fully allocatedcosts absorbedonly 75% of passengerrevenues in 1985 leavinga profit of 41 billionwon. All other KIR passengerlines show a loss with the exceptionof SMESRS. Mugunghwatrains are the most profitablewith a low operatingcost (less than half that of Saemaulon a passenger-kmbasis). Only ordinary(Pidulgi) trains representa financialdrain (see also Chapter VIi).

3.7 The costingsystem was revisedin 1985 to reflect specifictypes of equipment(4 classeseach of cars and locomotives)rather than systemaver- ages. 'iishad the effectof raisingthe cost of passengertrains, ezpecially the Saemaulclass. However,the increasein top speedsfrom 110 to 140 km/hr in November1985 for Saemaulclass trains is not reflectedin the cost of maintenanceof track and cars in that year, and cannot be for some time to come (see para. 7.8).

C. FreightTrain Operations

3.8 Freighttrains account for betweer,15% and 25X of total movementson the Kyongbuline dependingon proximityto Seoul (the lightestsegment being the Tongdaegu-Pusansection). Freighttraffic has seen only slow growth since 1977, with ton-kmsincreasing only 131 in the eight-yearperiod despite the rapid expansionof the Koreaneconomy, particularly exports. The availability of parallelexpressways, the congestedoperating conditions and the slower speedsat which freighttraffic is handledon this line, obviouslylimit KNR's ability to improveand expandservice.

3.9 Freighttrain top speedsare presentlylimited to 70 km/hr although KNR is investigatinghigher speeds,particularly for containertrains. Train sizes are extremelyshort, generally 20 cars or less, with one 3,000/3,300hp locomotive. All freighttrains use cabooses,which are no longerrequired under modernrail operatingpractices. The short train sizes reflecta desire to maintaina high horsepowerto tonnageratio and minimizeloss of speed due to possiblemechanical problems in order to allow freighttrains to thread their way throughthe high densitypassenger operation. It shouldbe noted that even the existingphysical plant would allow longer trainsas passing sidingsare between40 and 45 car lengths.

3.10 The limitationsof the existingsituation are most pronouncedon the containertrain operationsbetween Pusan and Seoul. Althoughfive trainsare scheduled,up to three extra sectionsare now operatedas and when required. Despitethis apparentlyhigh frequency,the effectivefrequency is only once daily as all trainsoperate on an overnightschedule to minimizeconflicts with passengertrain operations. Most of the trains departPusan between - 13 -

7 p.m. and 9:30 p.m. duringa brief gap in the passengertrain schedule. However,a series of seven overnightpassenger trains departingPusan between 9:30 p.m. and midnightovertake the containertrains causingmultiple delays to the latter. Once the last overnightpassenger train has passed, inter- ferenceis minimalexcept for the last few sectionswhere the freight trains get overtakenagain by a few early morningpassenger train arrivalsin Seoul. As a result,the containertrains require between 10 and 11 hours to completethe trip. Equipmentutilization and serviceare thus low.

D. Train Scheduling

3.11 As indicatedearlier, passenger trains generally operate from Seoul and Pusan at 15-minuteintervals in the followingsequence: Saemaul, Mugunghwa,Tongil, Mugunghwa. In addition,between Seoul and Taejon trains to three other intercityroutes must be fittedinto the gaps betweenKyongbu line trains. While all passengertrains operate at a top speed of 140 kn/hr, the varyingnumber of stops resultsin multipleovertakes. The Saemaultrains overtaketwo trainson each trip and one of the two half-hourlyKugunghwa trainsovertakes a Tongiltrain on each trip.

3.12 Two significantgaps in existingpassenger train departuresfrom Seoul and Pusan are 7 p.m. to 9:30 p.m. and midnightto 6 a.m. Freight trains are generallyscheduled to take advantageof these gaps, althoughDassenger trainsoriginating at intermediatestops cause some interference.

3.13 In the past two years severalmajor improvementshave taken place in passengertrain scheduling,with top speeds increasedfrom 110 km/hr to 140 km/hr in November1985. This was a resultof continuedtrack and car improvementsas well as adoptionof five-aspectsignalling. Passengertrain runningtimes were reducedbetween 35 minutes (Saemaul)and 15 minutes (Mugunghwaand Tongil). Passengertrains are scheduledwith a minimum of recoverytime (no more than 5 minutes)and demand fast acceleration(high power to weightratios) and aggressivebraking for speed restrictions. The presentschedules represent the fastestpossible with presentphysical plant and rollingstock.

3.14 During 1986 frequencieswere also increasedon Saemaulservice in July and again in September. With the exceptionof expandingfrequencies in the early morningand early evening,there is littleopportunity for further extra frequencies.During October 1986 KNR was operatingan experimental overnightSaemaul service.

E. TrafficDemand and Distributionamong Modes

3.15 Passengetservice is generallyin direct competitionwith express bus. Domesticair competitionis insignificantexcept in the Seoul-Pusancity pair where Korean Air offershourly service. While privateautomobile owner- ship is growing,the absolutelevel is still low, with only 0.02 cars per capita. - 14 -

3.16 Rail passengertraffic in the corridorhad been relativelystagnant between1978 and 1983, with passenger-kmsreaching a six year low in 1983 (Tables3.3, 3.4 and 3.5). Since 1983 passenger-kmshave increasedrapidly, growing21% in two years. For the first eight months of 1986, passenger volumehas grown an additional5.1%. A restructuringof fares in 1983 and introductionof a wider scale of discountsmay have resultedin the resumption of an upward trend in passengervolume. Even the 1986 statisticsprobably do not fully reflectthe long term impactof the speed and frequencyimprovements made in 1985 and 1986.

3.17 The overallstatistics ter.d to mask a favorableshift in traffic mix. Even during the periodof traffic stagnation,Mugunghwa air-conditioned expresstraffic was growingrapidly. Despiteconstant total volume, the shift to the higherpriced Mugunghwa trains from ordinary(Pidulgi) trains improved KNR's passengerrevenues. This gain in higher priced serviceprobably reflectsthe increasingaffluence of the populationas the proportionof passenger-kmsaccounted for by Mugunghwahas grown from 14% in 1982 to 22% in 1985. Saemaulservice, meanwhile, has been rather stagnant(Table 3.3).

3.18 As noted previously,KNR sees the Mugunghwaand Tongil servicesas positionedagainst express buses. Mugunghwaservice is approximately40-50Z above expressbus levels,while Tongil serviceis pricedat or below express bus fares. Mugunghwatrains have a 15-minuteto 30-minuteedge dependingon distance,while Tongilrunning times are about the same as the bus. Despite the high frequencyof KNR service,the expressbus still has an advantagewith 103 trips daily betweenSeoul and Pusan. In the Seoul-Taegucity pair 123 buses are scheduleddaily. These departuresare offeredby multiple operators,so it is not clear if the publicperceives their choice level to be quite so high.

3.19 A KNR market researchstudy done in 1984 gives some insightsinto travellers'perceptions of the competition.KNR passengerswere asked the merits of the expressbus. While frequencywas the largestsingle response (34.5%),good service (19.5%),price (9.2%)and speed (7.0%)combined to dominate70% of the responses. The same study produceda remarkableresponse to a questionconcerning the primaryreason for selectingtrain travel. Safetywas the reasongiven by 68% of the respondents. Comfort-relateditems accountedfor an additional15%. It would appear that the high accident rate on Koreanhighways is a powerfulnegative attribute of the express bus.

3.20 In the Seoul-Pusancity pair, the Saemauls6rvice is positioned againsthourly air service. While air traveltime is only 50 minutes, access time to the airportsas well as intensiveairport securitynarrow air's overalltime advantageto 1.0-1.5hours. Saemaulservice had 37% of the rail/airtotal market in the Seoul-Pusancity pair in 1985. KNR statistics indicatethat rail's share of the markethad been increasingin 1985 even prior to the scheduleimprovements in Novemberof that year and the addition of extra frequenciesin 1986. The resultsof these improvementsseem to be borne out in the first eight months of 1986 with a 20% gair in riders. Since the presentschedules have reachedthe limitsof the existingphysical plant, futuregains will have to come primarilyfrom improvedmarketing (to raise occupancy),replacement of older equipment,longer trains,and increasedroad and airportcongestion, which would possiblydivert trafficto the railway. - 15 -

3.21 In the same Seoul-Pusanmarket, Mugunghwa and Tongil serviceshold about 44% of the total public transportmarket, while buses have only 34%. (The balanceis accountedfor by Saemaultrains and air service.) In shorter distancemarkets, air is not a major factor,but bus/railshares apparently are similar,as the price and frequencyadvantages of buses are more significant for such trips.

3.22 Freightmarket share statisticsby line are not available. As comparedto the rest of KNR, freighttraffic in the corridoris more oriented to manufacturedgoods. Coal and cementaccount for only 20% of the tonnage, while for the systemas a whole these accountfor 65%. Miscellaneousgoods accountfor 34% of the tonnageand containers27%, reflectingthe industrializednature of the corridor.

F. CapacityLimitations and PossibleSolutions

3.23 The capacitylimitations of the railwaycan be broadly defined in three categories:

(a) high passengertrain frequencies;

(b) wide spreadbetween freight and passengertrain operatingspeeds; and

During the major part of the day, passengertrains are scheduledonly 15 minutesapart. This intervalis even less over the higher density segment betweenSeoul and Taejonwhere other lines increasethe passengertrain density. While the 11% of the passengertrain miles accountedfor by Pidulgi (ordinary)service in this corridorare not a major financialdrain (Table7.3), they clearlycontribute to freighttrain delays. The large numberof overnightpassenger trains also affectsthe runningtime of containertrains.

3.24 The wide differencein top operatingspeeds (140 km/hr vs 70 km/hr) only servesto exacerbatethe freight/passengerinterference problem. Passengertrains cover an equivalentdistance in less than one half the time of a freighttrain. Finally,the short lengthof freighttrains increasesthe numberof trainmovements needed and the chancesfor conflict. Although passingsidings would allow 40 cars, trains of half that size are common.

3.25 A centralizedtraffic control system (CTC) is presentlybeing installedbetween Seoul and Pusan. KNR operatingpersonnel do not plan bi- directionalrunning with the new CTC system,except in emergencies. While the high densityof opposingmovements may limit bi-directionalrunning during the mid-dayperiod, the lower frequenciesduring transitionand night periods could allow considerableimprovement in the running times of freight trains, especiallyof overnightcontainer trains (see para. 4.20). The availability of bi-directionaliignalling could lead to investmentin strategicsections for a third track which would allow passingswith minimal freighttrain delays. KNR personnelshould undertake familiarization trips to appropriate - 16 - railwaysabroad to study the planningand managingof bi-directionalopera- tions on high density lines.

3.26 The issue of passengertrain frequencyis more complex. The present Kyongbuline is a well patronized,profitable operation which reflectsKNR's commitmentto improvingservice. Nonethelessalternate strategies of passengertrain operationappear worth investigatingboth to improveproduc- tivityof the passengerservice and to allow greaterKNR penetrationof the containermarket to help improveKNR's financesand relieveincreasing highway congestion.

3.27 The presentservice pattern is based on the twin objectivesof providingair-competitive trip times in the Seoul-Pusanmarket while simultan- eouslyoffering a high level of frequencyversus the expressbus. But it has its limitations.Although UiR operatesfour trainshourly, the perceived hourlyfrequency to the averageconsumer is either one (for Saemaulor Tongil passengers)or two (Mugunghwa).Because of the large spread in fares between services(approximately 501 for each change in class) the probabilityof interchangeabilitybetween classes seems low. Each type of consumeris offereda service/farepackage in a differenttype of train.

3.28 In addition,a realisticappraisal of the market and potentialfor competingwith air in the Seoul-Pusanmarket is in order. Even though the improvementsin speed and frequencyhave resultedin substantialincreases in trafficduring the first eight months of 1986, this will return volumesonly to the levelsreached in 1980. The traveldistance (445 km) and the constraintsplaced on average speed by the topographyof the countrywill make it difficultto ever reach traveltime paritywith air on an origin-destination basis. While there is clearlya substantialmarket for the present high- speed rail service,a restructuredservice package might retainmost or all of the existingridership base, while improvingoverall railroadefficiency.

C. AlternativeStrategies

3.29 Two alternativeservice strategies appear worth considering, initiallyat least for the mid-dayperiod between9 a.m. and 3 p.m. when trafficis lighter. The first option involvesoperation of three trains hourlyat 20-minuteintervals. On the assumptionthat it would be necessary to replicatethe overallcapacity of the existingservice, the followingwould appearappropriate:

Saemaul - 2 - 3 cars Diner - 1 car Mugunghwa - 5 - 8 cars Tongil - 3 - 4 cars 11 - 16 cars - 17 -

3.30 While all trains would make stops at Taejon and Tongdaegu,the remaining10-15 intermediatestops could be rotatedamong the three hourly frequencies,producing a total of seven intermediatestops. Based on the presentschedule, such a servicemight be scheduledin 4 hours and 35 minutes. This packageresults in 20 minute headwaysin the dominantmarkets for all classesof service. The primarynegative impact is on presentSaemaul end- point riders and travellersto smallerintermedihte points. Mugunghwa passengers(the fastestgrowing component)receive an increasein frequency, speedand access to dining cars on all tra:ns.

3.31 A secondalternative retains Saemaul service in its presentformat with hourly departures,while possiblycreating more track time for freight servicethan the first scenario. CombinedMugunghwa and Tongil trainswould operateat 5 minutes and 35 minutesafter the hour. This option increases frequenciesfor Tongil passengersand may slow down Mugunghwaservice slightly dependingupon the rotationof individualstops. However,the revisedpattern of departurescreates half-hour "windows" for freighttrain operationand/or track maintenance.

3.32 Both scenariosinvolve combined operation of Mugunghwaand Tongil equipment. It appearsthat the brake systemsof the two classesof service are presentlynon-compatible. Remedying this problemwould requireonly a modest outlayof under US$1,000per Tongil car. Either alternativewould benefit from simulationon a train performancecalculator (TPC) to determinepo- tentialrunning times and scheduleimpacts in order to eliminatepotential operationalproblems, although these could be handledmanually also. TPC runs would also be valuablein determiningthe potentialrunning times of container trainsof varyingsizes and speeds. The precisechanges to be introduced shouldbe based on market surveysand shouldbe reviewed6-12 months later in the light of actual passengerresponse in terms of ridership.

3.33 Any improvementin line capacityrequires a speed-upof freight service,particularly the containerservice. The present top speed of 70 km/hr seems extremelyconservative, especially considering the high quality of the track structure. Top speeds for containertrains of 120 km/hr are not unusualin North Americaand some West Europeancountries, and 110 km/hr certainlyshould be within reach in Korea. If the passengerservice is restructuredto providean adequate"window" and freighttrain top speeds increased,container trains shouldbe able to operateduring the mid-day periodwith a minimum of overtakes.

3.34 Althoughmost of KNR's freightcars can be upgradedat modest cost to operateup to 110 km/hr (para. 5.20), the presentcontainer cars have a high empty weight and can only carry containersof 40-foot length. It would be appropriateto acquirea fleet of cars incorporatinga lightweightdesign and the flexibilityto handle containersof varyinglengths (para.4.25(b)). Since the highest level of performanceis desirablein trainsof up to 40 cars, KNR shouldconsider a more appropriatebrake system on such a fleet, e.g. load-emptyor fast-actingelectropneumatic system.

3.35 As indicatedpreviously, it is desirableto increasethe train size closerto the capacityof the majorityof existingpassing sidings (40 freight - 18 -

cars). An increasein train size would enable a reductionin passenger/freight train conflicts. A TPC would be valuableto determinethe impacton running times, identifyrequirements for multipleunit locomotiveoperation on freight trains,and refine the schedule.

H. Conclusion

KyongbuLine

3.36 The presentKyongbu line is an impressivehigh-density passenger operation. However,the line is approachingits capacitylimit for passenger frequenciesand has been unable to retainmarket share in the freightmarket. KNR needs to rethinkpresent marketing and operationalstrategies. It should also review alternatestrategies to the presentthree-class, separate train concept. While Tongil servicegenerates substantial patronage, the increasing affluenceof the populationwill tend to give the Mugunghwaservice the biggestpotential for growth.

3.37 KNR staffmust begin to develop strategiesfor maximumuse of the CTC presentlybeing installed. The abilityto take advantageof the bi-directional capabilitiesinherent in the systemwill influencefuture service packagesand capital investmentstrategies. KNR must also upgrade the capa- bilitiesand speed of its freighttrain operation.

3.38 It appears that the main bottleneckon this line is the Suwon-Chonan section,and KNR shouldconsider early additionof a third track in this sectionto improveoverall line capacity.

Other Aspects

3.39 KNR may be better off releasingexisting locomotives (electric) from passengerservice by purchasingMugunghwa electric train sets for the presentlyelectrified lines, as this is the fastestgrowing and most profitablesegment of KNR's ridership. This strategycould be implemented, providedit is financiallyattractive, as additionaltrack sectionsare ele:trifiedwhere the locomotivesreleased as a resultcould be put to work for other traffic.

3.40 Three separateclasses of servicemake even less sense outside the Seoul-Pusancorridor. KNR is alreadyat a frequencyand speeddisadvantage relativeto buses. It should,therefore, pursue a policyof having in all trains,maybe, two classes: one or two Saemaulcoaches and the balance Mugunghwacoaches. Where appropriate,KNR should offerdiscounts to attract price-sensitiveriders, while emphasizingthe non-pricefeatures of train travel--safety,comfort, etc. UnfortunatelyKNR has a large number of Tongil cars less than 10 years old, and thesecould be phasedout graduallyor convertedif feasible. - 19 -

IV. FREIGHTOPERATIONS AND FIXED INSTALLATIONS

A. General

4.1 KNR is generallymeeting the needs of freight (otherthan container) shippersas of 1986 and continuesa trend of increasingtonnage carried and ton kilometersgenerated. Althoughmarket share againstother modes has declinedsomewhat, from 46% in 1981 to 40Z in 1985, total tons carried show steady increasesyear to year, from 48.8 million tons in 1981 to 55.3 million in 1985 (Table2.4). Ton kilometershave likewiseincreased, resulting in the same averagehaul of 222 km/ton in both 1981 and 1985. Highwaysgained two percentagepoints and marine/airwayfour percentagepoints against rail in the five-yearperiod. KNR's positionin the market place is relativelystronger than in developednations generally, which is quite good consideringthe staticroute structurein contrastto a growinghighway network. It has a sound freighttraffic base on which to make improvementsin both profitability and tonnagecarried. What is lackingis a marketingstrategy oriented to the main commoditiesand customersKNR servesand a marketingstaff to implementa strategy.

B. Main TrafficCommodities and Services

4.2 Korea'srailway network enjoys a rather broad mix of commodities which shouldtend to offset any futuredownturn in one particulartraffic segment. Commodityspecific assessement follows. (See also Table 2.4.)

4.3 Coal. As is the case with most major railwaysin the world, coal is KNR's highestvolume freight movement. In contrastto experienceelsewhere, KNR's coal movementswere handledat a loss of W 45 billionin 1985 and at an operatingratio of 105%. Two distinctcoal markets exist, domesticanthracite shipmentslargely destined to varioushome-heating uses and importedbitu- minous coal in demand by steel makersand fossil fuel electricitygenerating stations. Anthraciteis also moved to export transshipmentpoints.

4.4 Coal tonnageexperience and recentgrowth in volume is shown in Table 2.4. Projectionsby the KoreanTransport Institute in 1986 show domesticanthracite demand closelyparallel to populationgrowth. This does not take into accountshifts in home heating energy sourcesand environmental constraintswhich may dampen consumption. KNR shouldfocus on improved efficiencyin coal movement,including penetration into importsby shorter haul shuttlesby block train,and be alert to possibledrop-off in anthracite tonnage.

4.5 Coal handlingby KNR and by the ports is a mixtureof modern efficiencyand outmodedmethods. For example,export coal via Mukho Port is marshalledso that each car is hopperdumped in one of 42 specificproducer storagestacks; these stacksare subsequentlymixed in consolidatedshipments loadedvia modern conveyorloaders on board ships. At the same time gondolas are hand unloadedby shovelsnearby to the ground and the coal shoveledon to carts to be wheeledup a ramp for vesselloading. Freightcar detention dependson the coal handlingmethod used and requiresshunting operations. - 20 -

4.6 The first commodityspecialist group in a recommendedseparate marketingdepartment should be for coal. It is KDR's largesttonnage traffic and producesthe largest freight operatingdeficit. It is recommendedthat the new coal marketinggroup includemarket research,traffic costing (using the existing system),pricing, and serviceplanning and developmentto optimizeoperations and efficiency. Eliminationof the coal operatingdeficit would put KNR freightmovements in an overallprofit .,osition.Beyond that, coal transportshould produce profits for KUR.

4.7 Cement. KDR handles cement both in bulk and in bags to both domesticand exportmarkets. Improvedefficiency has occurredthrough a shift to more bulk movement,shipper supplied "tank" cars, silo installationsat transloadingpoints, and respectablevolume increase. Provisionof cars and rail orientedsilos by shippersindicates a long-termuser investmentcom- mitment to rail and resultingprospect of trafficretention. Cement movement produceda W 555 million profit to KDR in 1985. Cementis an important commodityto DR and offers potentialfor the futureas buildingconstruction is likely to remain strong. In KDR's marketingcement should fit into a market group which includesconstruction aggregates and other commodities related to buildingsand construction.

4.8 Ore. KWR's ore tonnageand ton kilometerexperience has shown continual,but more gradual,growth than for coal and cement. This commodity groupingproduced a profit of V 470 million in 1985. Korea's strengthas a steel producershould produce increasingore trafficvolumes for KDR. Determinationof the best groupingfor ore in consideringformation of a new marketingdepartment offers severaloptions. Ore sometimesis groupedwith coal and aggregatesthat are moved on the same railroadequipment. Often ore is grouped with metals and other mineralswith similarmarket characteris- tics.

4.9 Oil. Petroleumis now KDR's fourthlargest commodit, grouping and shows rather staticvolumes and ton-kilometers.A profitof w 0.9 billionwas generatedin 1985, with an operatingratio of 95Z. As the Government continuesefforts to reducedependence on importedoil, this rail movement could see downwardpressure. Oil fits naturallywith other petroleumproducts in groupingcommodities for KUR's marketingpurposes. Customersand uses are relatedas are many movementcharacteristics.

4.10 Fertilizers. KUR has experienceda steadydecline in fertilizer tonnagemoved, yet, becauseaverage haul has increasedsomewhat, ton kilometers have not sufferedproportionately over the recent past. Since fertilizerhas the third highestaverage length of haul and produceda W 2 billion loss in 1985, marketingattention should be directedat supporting continuedmovement through efficiency improvements, tariffs to beat (but not by a large margin) competitionand agrariandevelopments. In the freight sector,this commoditycaused the worst operatingratio of 124X for KNR. Fertilizerpresents a large challengebecause the loss ratio was the worst of any freightcommodity in 1985. Yet the volumemight not justifya separate unit in a new marketingdepartment. Considerationcould be given to grouping fertilizerwith other chemicalsin the "other"category, or with grain. - 21 -

4.11 Containers. Containermovements have now increasedto the point that this market segmenthas overtakengrain in the past two years, both in tonnageand ton-kilometers.During the first half of 1986 a further increase of more than two thirdsover 1985 has resultedfrom added train frequencies betweenPusan and Seoul where KNR's containertrain servicesmainly operate. Rail containerservice taps only 10% of the total market,22% of the ccrridor market,and handlesmore inboundempties to Seoulat cut rates than time sensitiveexport loads.

4.12 Containerhandling is, from all indications,KNR's greatestfreight growth potential. Containercontribution to freightprofit is already solid, generatingalmost W 1 billion in 1985 at the lowest freightoperating ratio of 85%. KNR shouldestablish an entirelyseparate container business unit within a new marketingdepartment. This unit shouldgo beyondcommodity marketing and should includeelements of operations. Responsibilityfor terminal operationsand intermodalrelationships with truckersshould be includedin this function. Otherwisethe vast potentialto increasethis important trafficsegment, which is the most profitablein KNR's freightbusiness, may not be fully realized.

4.13 Althoughsix to eight containertrains are operatedbetween Seoul and Pusan in each directioneach day, these schedulesare fleetedover a four- hour periodwhich in realitygives once a day dispatchcompared to "anytime" highwaymovement. Rail is not at presentcompetitive from a service stand- point and, therefore,cannot command higher revenue per shipmentin this growingmarket segment,but since this trafficis profitableand of considerable potentialto KNR, it needs attention(see also ChapterIII).

4.14 Grain. As is true in many other countries,Korean movement of grain fluctuateswith market conditionsand crop production. Althougha random occurrence,annual tonnagevariations sometimes are counter-cyclicalto generaleconomic conditions as appearsto have been the case in Korea in the period 1981-85. There is no model that can predictthe weather and therefore forecastsof grain trafficanywhere in the world involveelements of risk and uncertainty. Grain produceda marginalloss of W 173 millionin 1985 for KNR. As statedearlier, grain and fertilizercould be placed togetherin a new marketingsector. This group includesother food products. A growing populationpresents KNR with a market opportunityin moving foodstuffsto feed the people.

4.15 Other Commodities. The miscellaneouscategory "other" as a grouping standsthird in both KNR tonnageand ton-kilometers.Traffic in this classi- ficationis importantto overall railroadperformance and deservesconstant marketingattention to sub-groups. In the case of KNR, this "other" traffic producedthe largestfreight profit of over W 1.0 billionin 1985. Many railroadadministrations have experiencedserious erosion in volumes of "other" trafficin recentyears becauseof lack of focus on importantbusiness segmentsin this classification.At the same time, effortsshould be made to identifyitems at this categorywhich are betterleft to other modes in order to eliminatemoney-losing operations. - 22 -

Baggage/Parcels

4.16 The performanceof baggage/parcelstraffic is worseningrapidly. Costs were 147% of revenue in 1985, with a Loss of almostW 8 million in 1985. Althoughthis serviceis vital, particularlyon branch lines (where expeditioustruck serviceis less easily available)and at smaller stations, the baggageand small parcel serviceis costly to the railway,as it is labor- i.tensiv3and involvespoor equipmentutilization. (See para. 7.9.)

C. Fixed Installations

4.17 KNR has ongoingprograms to upgradetrack, signallingand communicationsin order to enable it to improveoperations (both passengerand freight)and augmentcapacity. With the presentemphasis on maintainingand improvingthe qualityand level of passengerservice, these programsare importantif KNR is to play its appropriaterole in the growing freight market. Developmentsin these areas are reviewedbelow.

Track Upgrading

4.18 Good progressis being made in upgradingtrack structureto withstandhigher speeds and heaviertonnage. Heavierrail of 50 and 60 kg/meteris being installedon high densityroutes (Map 20226). Heat-treated rail is now being used on sharp curves. Long-weldedrail and concretecross ties are being installedon the Seoul-Pusancorridor. For rail welding,gas pressurewelding is used in shop and thermitwelding on site. Purchaseof track maintenancemachinery has enabledKNR to improveproductivity and efficiencyin track maintenance,especially important because dense traffic limitsaccess time to main line track. Tampers achieve600 to 800 meters per hour on KNR, higher than on most other railways. Fifty-sixpercent of the Seoul-Pusancorridor track had long-weldedrail in 1986, with 1001 projected for 1990.

Signalling

4.19 A major part of the KNR systemhas some form of signallingin place. Exceptionsare the Munsan,Susaek - Uijougbuand Shint'an-rilines to the north of Seoul and the Ch'onan-Ansongline which branchesfrom the Seoul- Pusan corridor. CTC is in place on multiple-trackagein the Seoul metropolitanarea and extendsto Inchon,Susaek, Suwon and to the eastern extremityof Seoul. The metropolitanarea CTC was providedby Siemensand has facilitateddoubling the formertrain frequencies. Train identificationis automaticonce the train number is entered into the system. Train graphs are kept manually. The operatingscheme or priorityplan is set up by the main dispatcherand carriedout by other dispatcherswho work the controlboard. CTC is also in place on the singletrack, electrified Chongyangni-Pong-Yang segmentto the east of Seoul,and line capacityhas increasedas a result. - 23 -

The double-trackSuwon-Pusan section is equippedwith automaticblock signals. The remainderof the signalledsingle track lines have automatic train stop (ATS) in place. This system is designedto preventa train operatorfrom overlookingor ignoringa cautionaryor stop signaland will stop the train if that happens.

4.20 Extensionof modernizedsignalling is underwayon two high density routes. The Pusan corridorCTC projectwill be completedby 1988. This systemis computerizedand will allow movementpriority planning and simulation of operations. Unfortunatelythis systemdoes not includebi-directional signalling,nor are improvementsto the track layoutbeing undertakenat the same time; adding strategicallylocated high speed crossoverswill allow fastertrains to overtakeslower trains ahead. Installationof CTC is also underwayon the mountainousChech'on-Ch'oram electrified line that carries heavy volumesof coal and cement traffic.

4.21 Improvedsignalling has been installedwhere most needed, lines that handlehigh train frequencyand heavy tonnages. KNR plans for the future call for furtherinvestments in CTC systemsin place,installation of additional automaticgrade crossingprotection, and improvementto interlocking.Grade crossingswith warningdevices almost doubled in number in 1981-85from 414 to 791. Any futureCTC projectshould be precededby operationssimulation in the planningprocess for the optimumuse of CTC capabilities,including track layout changes.

Communications

4.22 KNR's communicationssystem is reasonablygood. For the most part it uses modern technologyand futureplans includefurther improvements and replacementof the older, obsoleteportions. There are 440 km of optical fiber lines on the main Seoul-Pusanline and 1,400km of undergroundcable in other areas. There is no microwavein the network. Leased coaxiallines from the public telephonesystem augment KNR's system. About 602 of the railway is servedby open lines. In addition,VHF radio is being used in train and yard operationscontrol as well as for many maintenanceoperations. For these purposes,there are 750 VHF stationsand 1,300 portableunits.

4.23 With the growingpressure for more sophisticatedcommunication and data transmissionfor managementinformation and an increasingneed for faster and more accuratetrain control,KNR recognizesthe need to step up improvements in this vital area. Furtherexpansion of electronicdata processing (EDP) to supportthe recommendedmanagement information system improvements requireadditional investments in communications. - 24 -

D. Recommendations

4.24 KNR projectssubstantial traffic growth over the next five years (Table7.4). These freightmovements will basicallybe concentratedin the heaviestdensity lines (see Map 20226). Withouta coordinatedsystems approachto line capacityimprovementst KNR may not be able to achieve its freighttraffic goals and improvementsin capacityand profitability.There is unusedcapacity in coal cars becauseof poor loadingpractices and waste of space and excessivetare weight in existingcont6iner train sets; these should be eliminatedor minimized. Nationalenergy conservationgoals will also be servedby improvingKNR freighthandling efficiency by operatinglonger trains and carryingadditional cars and containersper train.

4.25 The followingsuggestions are offeredfor KUR's considerationto improvethe handlingand profitabilityof coal and containertraffic, two freightoperations in which substantialimprovements are needed:

(a) Coal Traffic:

(i) Load coal cars to full visiblecapacity and, as an incentive,charge shippersfor 95% of such capacityeven if the car is lightly loaded. To controloverloading, install automatic electronic weighingmachines at two or three key points. Also, coal trains shouldhave the maximum numberof cars that can be operatedwith availableequipment and facilities. More tons per car and more cars per train will add to line tonnagecapacity.

(ii) Raise coal rates on singlecar shipmentsand shipmentsthat require individualcar sorting,such as at ports and coal yards. Retair existingrate levelson efficient,single-origin, single-destination block trainsand on multiplecar shipments. The rate differential will provideshippers an incentiveto adapt to efficiency improvements.

(iii) Increasethe fleet of fast unloadingcars while eliminatingold, inefficientcars. - 25 -

(b) ContainerTraffic:

(i) Consideracquisition of approximately100 sets of high-speed,light- weight containercars simila.to those now being deliveredto the USA by Hyundai;these would cost about US$13.0 million.

(ii) Strive to achieve110-120 km/hr train speedswhich will allow a round trip per day per set with a runningtime of 6-7 hours. The freightcar3 can be easily and inexpensivelyupgraded for the purpose (para.5.10).

(iii) Utilizetrain slots openedup by passengertrain reschedulingand higher operatingspeeds to run containertrains to followpassenger trains.

(iv) Simulateoperations under new CTC in the Seoul - Pusan corridorto produceneeded containertrain operatingslots.

(v) Investigatefeasibility of using reverseCTC signallingon certain sectionsand installationof high-speedcrossovers.

(vi) Increasecontainers handled per train by new equipmentto eliminate wastageof space. Provideadjustable fixtures on cars to handle 20, 40, 45 and 48 foot containers.

(vii) Start operating12 to 16 longer containertrains per day in each directionas soon as possible.

(viii) Operate direct containertrain servicebetween Pugok container terminal(near Seoul)and the Pusan port containerrail loading terminal.

4.26 Implementationof the recommendationsmade in this chapterwill improvethe utilizationof existingcoal cars by 20-25% and of containercars by almost 100l, reducingproportionately the need for additionalinvestments to handlegrowth in trafficafter the improvedcapacity of the existingfleet has been fully utilized. There would also be savingsin transportationand terminalhandling costs: for example,in 1985 KNR could have saved as much as W 45 billiona year in coal transportand handlingcosts (W 9 per ton-km,a 43Z saving)and up to W 2 billionin containertransport cost (W 5 per ton-km, a 32Z saving). The potentialfor additionalnet revenuesfrom increased containertraffic is also large. - 26 -

V. ROLLINGSTOCK AND WORKSHOPS

A. Introduction

5.1 KNR has a relativelymodern fleet of rollingstock which is well maintainedin new or updatedolder workshops. The MechanicalDepartment personnel,who manage and carry out the maintenanceof the fleet, are well trained,alert, aggressive and well disciplined. The result is an operation free of many of the failuresof equipmentthat are commonplaceand costly on many railwaysin the developingcountries. In addition,the diesel electric locomotives,which are all of one basicdesign built by a singlemanufacturer, have a relativelyhigh availability,at about 90%. The passengercars and freight cars are in good conditionwith averageavailability of 95%. On the surface,then, it would appear there is littlewhich can be done to improve the situation. Close examination,however, reveals a number of maintenance issues the resolutionof which can make a significantimprovement in KNR's expendituresfor rollingstock maintenanceand improverolling stock availabilityand productivity,while simultaneouslyreducing investment needs for new equipment.

B. Locomotives

5.2 Motive power is of GeneralMotors, Electro-Motive Division (EMD), diesel-electricdesign importedfrom the USA or, in recentyears, assembledin Korea by ffyundaiPrecision Industries Company located near Pusan. There are 471 of these EMD type units which vary in size from 800 and 900 hp switchers to 3000 hp main-lineunits. Axle weights range from 19 tons per axle to 24.5 tons per axle. There are also 90 electriclocomotives, discussed in ChapterVI, of the 50 c/s group design;these are now beginningto be assembledby Daewoo Heavy Industrieslocated in Seoul. For passengercommuter service,there are 138 diesel railcarsand 408 electricrailcars. There are no steam locomotives.All of the motive power units are equippedwith air brakes. Statisticsdescribing the motive power fleet in more detail are containedin Tables 5.1 and 5.2.

5.3 The availabilityof diesel electriclocomotives, while good at 90% in 1985, is not as good as in most successfuldieselized railways such as those in North America,where operationsare more demandingof the locomotives than in rorea. Such railwayshave about 95% availability. ConsideringKNR's relativelylight locomotiveworkloads, and the smallfleet size and country's geography,it would be reasonableto set 95% availabilityof these locomotives as a minimum target for KNR.

5.4 An analysisof currentavailability indicates that unscheduledtrips to the shop due to componentfailure are not a major cause for locomotiveout- of-servicetime. In 1985, therewere 91 diesel locomotivefailures which equate to one for 757,890engine-km. Anotherway to look at failuresis a comparisonof total trips to the shop for failure to total trips to the shop for scheduledmaintenance. The figure is 91/172,214or 1/1,892. The availabilityproblem, therefore, rests in the scheduledmaintenance program. - 27 -

5.5 KNR's diesel locomotivemaintenance schedule calls for a number of inspection/maintenanceactivities which require"shopping" the unit for periodsranging from a few hours for a daily inspection/servicingto 21 days for an eight-yearoverhaul. The schedulelooks like this:

PRESENTDIESEL LOCOMOTIVEMAINTENANCE SCHEDULE

PM Schedule Number days required

Daily 0.1 2 weeks 0.5 1 month 1.0 3 months 2.0 6 months 4.0 1 year 11.0 2 years 14.0 4 years 16.0 8 years 21.0

Disregardingthe time requiredfor daily inspection/servicing(this is, however,a significantamount of total time when the hours add to about 30 days a year), the scheduledmaintenance in the eight-yearcycle requires 293 days per unit in shop out of 2,920 days in eight years. This is equal to 10% of the potentialtime available,or 36.6 days out of serviceeach year for each of KNR's 471 units, the equivalentof 47 locomotives. If this time can be reducedby 50%, availabilitywould go up to 951 and 23 locomotiveswould become availablefor additionaloperations. Alternativelythe. purchase of new locomotives,as and when additionsare needed,could be avoideduntil the existingfleet is fully utilized.

5.6 Utilizationof diesel locomotivesis low at 13,365engine km (8,305miles) per unit per month. This is broughtabout in part by the small size of the networkand in part by the nature of the operationswhich are about 68X passengertrain-km. However,there are also other operational implications.For example,the locomotivesare lightlyloaded most of the time becauseof the need to have high horsepoweravailable for rapid accelerationof both passengerand freighttrains; this is not only wasteful of expensivemotive power but of fuel as well. In still anotherexample, lubricatingoil shouldonly be changedon the basis of its conditionas determinedby a qualifiedlaboratory. The lubricatingoil is a vital and useful indicatorof enginecondition and can thus aid the manager'sjudgement on when repair is requiredor, more importantly,when it is not needed. A networkof, say, three laboratoriescoupled with a modern computeraided maintenanceinformation system is needed to successfullyimplement the program. This would save KNR a minimumof 100,000gallons of lubricatingoil annually,worth at least US$200,000. - 28 -

C. PassengerCars

5.7 The passengercar fleet of KNR consistsof 2,168 units as of the end of 1985 and is summarizedbelow:

KNR PASSENGERCARS

Type of car Number in stock

Saemaul(luxury) 127 Mugunghwa(first class) 326 Tong-il (secondclass) 701 Pidulgi (thirdclass) 689 Sleepingcars 32 Others 293

Total PassengerCars 2,168

Tables 5.1 and 5.2 give additionaldetails of the passengercar fleet, including age. It will be noted that the age of the cars is spreadout nearly even- ly over one to 25 years. Power cars supportthe air-conditioningand heating systems. KNR rates 1,514 cars as good, 621 as fair, and 33 as in poor condition. Observationsindicate that most of the passengercars are in a good state of repair. They are equippedwith modern bogieswhich can safely handle the 140 km/hr maximum speedsencountered and all are equippedwith air brakes and rollertype journalbearings. The underframesare the center sill type with automaticcouplers and draft gear. Bodies are steel frame with paintedsteel shells.

5.8 The availabilityof these cars is high at 95% and, while this is impressive,there are ways to improvethe situationfurther and reduce maintenancecost in the process. As with locomotives,the passengercar periodicmaintenance schedule is the prime cause for out-of-servicetime. The scheduleis set up to requirecomplete overhaul at 12 years,which is reasonable. It also calls for a light overhaulevery two years. These heavy overhaulschedules are augmentedby work at the depotsat intervalsof one year, six months,and one month. The scheduleand time requiredin shop are shown below: - 29 -

PRESENTPASSENGER CAR MAINTENANCESCHEDULE

Schedule Time in shop

12 years 12 days 2 years 8 days 1 year 1 day 6 months 0.5 day 1 month 0.1 day

In-trainfailures are very few and so the scheduledmaintenance aspect of availabilitymust be examinedto find improvements.Utilization of the cars is not high, at about 19,000km (12,000miles) per month.

D. FreightCars

5.9 The freightcar fleet at the end of 1985 containeda total of 16,133cars, consistingmostly of box, gondola,and tank cars. This number includes1,926 privatelyowned cars. Detailsof the fleet are shown in Tables 5.1 and 5.2 and are summarisedbelow:

KNR FREIGHTCARS

Car type Number in stock

Box cars 4,280 Gondolacars 7,364 Flat cars 760 Tank cars 2,992 Refrigerator 16 Caboose 413 Containercars 308

Total 16,133

5.10 KNrKs freightcars are mostly of 40-ton and 50-ton capacitywith an averagecar capacityof 45.4 tons and a total fleet carryingcapacity of 732,953tons. They are of center sill design,with Associationof American Railroads(AAR) type automaticcouplers and draft gear; all are equippedwith air brakes. Bogieshave AAR type ride controlsystems which perform satis- factorilyat up to 110 km/hr when equippedwith constantcontact stabilizer type side bearings. KNR's presentfleet can operateup to 90 km/hr and, with the additionof resilientsidebearing type stabilizersat a modest cost of - 30 -

US$200per car, can go up to 110 km/hr. About 90% of the cars are on roller journalbearings. The presentschedule calls for "shopping"the cars at periodsof one year for an annualinspection, maintenance, and light repair; and at two years for inspectionand heavy repair. The one-yearmaintenance requiresone day in the shop and the two-yearmaintenance requires five days. It was not possibleto determineaccurately how much time is being lost on averagefor takingthe cars out of serviceand transportingthem to the shop, and returningthem to service,but this is at least two days at each end of the cycle for a totalof four additionaldays for each shop visit.

5.11 Freightcar availabilityin 1985 averagedabout 96.5% which is good but, when the small size of the system is considered,it shouldbe possibleto bring this up to 98% and reducemaintenance cost at the same time. Utiliza- tion is good from the standpointof turnaroundtime which is 4.4 days, but this must be viewed in the light of the overalloperating situation. The railwaysystem is small,the averagehauling distance for freightis short (averagedistance traveled was 2683 km/month/car)and there is a high density of passengertrains. Both availabilityand utilizationcan be improved.

E. Workshops

5.12 KNR maintainsits rollingstock in threemajor backshopslocated in Seoul,Taejon, and Pusan. Light maintenancesuch as daily, two-weekly, monthly,six-monthly, and annual,is performedat 11 depot sheds. In addition, daily inspectionand servicingare carriedout at five runningrepair sheds (Map 20225). The backshopsare well located,and the sheds are also well distributedover the network.

5.13 The Seoul backshopis an old facilitydating back to the turn of the century. It is presentlydedicated to heavy overhaulof electriclocomotives, some passengerand freightcars, electricrailcars, and diesel railcars. The shop is equippedwith adequateoverhead cranes and more than enough covered space. Detailsof the electriclocomotive repair work done at Seoul backshop are discussedin ChapterVI. The workshop'sannual capacity is as follows:

SEOULWORKSHOP CAPACITY

Type of equipment Capacity

Electriclocomotives 93 Electricrailcars 244 Diesel railcars 348 Generatingcars 95 Heatingcars 178 Passengercars 512 Freight cars 2,387 - 31 -

The Seoul backshophas a full complementof supportshops such as air brake shop, wheel shop, small motor shop, machineshop, etc., which furnishneeded servicesto all phases of shop operation.

5.14 The Pusan backshopis also an old facility. It is dedicatedto heavy overhaulof the entirediesel locomotivefleet and also handlesheavy overhaulof passengercars and freightcars. The shop presentlyemploys 1,110 workersand the annualcapacity is as follows:

PUSAN WORKSHOPCAPACITY

Type of equipment Capacity

Diesel electriclocomotives 700 Passengercars 500 Freight cars 4,500

The shop is well equippedwith overheadcranes and has plenty of space under roof. Like the Seoul backshoptthe Pusan shop is a littlecrowded because of its age and locationin the city, but there is adequatespace and the layout of buildingsis acceptablefor the type of work being undertaken. The entire facilityis well maintained,including the criticaloverhead cranes and transfertables.

5.15 The Pusan diesel locomotivework area arrangementis divided into two separateoperations. One takes care of intermediatetype work (mostly annuals)in one large buildingand the heavy work (two-yearlyto eight-yearly) is handled in anotherpart of the facility. In both of these work arrange- ments, the locomotivemust wait for extendedperiods while some componentsare repairedor rebuilt. The passengercar repairarea is quite large and, while it does not have a lot of heavy machineryfor fabricatingreplacement body components,the work progressesin an orderlyflow arrangement. The paint shop is equippedwith a gantry/elevatortype paint spray machinewhich producesgood results. As in the case of heavy locomotivework and freight car overhaul,the equipmentbeing repairedis carried throughthe repair line on its own trucksor on dummy trucks,and is moved from one bay of the shop to anotherby the use of transfertables. This is an efficientarrangement which allows flexibilityin rearrangingwork flow when needed. Freightcar repair work progressesthrough the shop in much the same manner as passengercars. As in the passengercar shop, there are few heavy machineswith which to fabricatelarge body replacementcomponents. The Pusan workshopalso has all needed supportshops, air brake,wheel and axle, electric,machine shop, etc., which provide serviceto all shop operations. - 32 -

5.16 The Taejon workshopis a new facilitylocated in the suburbsof the centrallylocated city of Taejon. The plant was built during 1979-83and employs1,164 people. With the constructionof this new workshop,three older ones--Yongdungpoin Seoul, the Inchonworkshop, and the track materialdepot at Taejon--wereclosed as their work was transferredto the new shop. The shop'swork assignmentincludes overhaul of passengerand freightcars, manufactureof brake shoes,manufacture of turn-outs,and repair of heavy cranesand track maintenace equipment. The workshophas 111,832m 2 of space under roof on a 982,530m site. The buildingsare modernwith good lighting for both day and night operations. Each facilityis well equippedwith modern tools and the work flow is well arrangedfor efficiency. The Taejon workshop is one of the best of its kind in the world. Its output,compared to KUR's system requirements,based on presentmaintenance policies, is shown below:

TAEJONWORKSHOP 1985 OUTPUTAND KNR SYSTEMREQUIREiENTS

Systemtotal Taejon Z of Type of work requirement workshop total 1985 output

Passengercars 1,120 490 44 Freightcars 9,090 4,500 50 Track equipment 360 360 100 Cranes 15 15 100 Modify rollingstock 840 490 58 Foundry lO,OOOtons 10,000tons 100 Turn-outs 850 sets 850 sets 100

F. Suggestionsfor Improvement/Rehabilitation

5.17 KNR is doing a good job of maintainingits motive power and equipment, but the cost is high in terms of availabilityand financialoutlay for mau,power,materials, and shop facilities. Though the result to date has been good comparedto many other railwaysystems, there is room for significant savingsand improvedperformance. The approachto improvementshould be four- pronged:

(a) furtherconsolidation of work;

(b) expansionof the unit exchangesystem of repairs;

(d) expansionof MIS to includeall aspectsof motive power and rolling stockmaintenance, repair and operation. - 33 -

5.18 The presentassignment of the work on diesel locomotivesto the Pusan workshopis a good arrangementand shouldbe continued. Likewise,the assignmentof all electriclocomotive overhaul to the Seoul workshopshould be continued. Passengercar and freightcar heavy overhaulwork is being done for the most part at all three workshops. The new shop at Taejon is under- utilizedas it is operatingonly one shift and there are a numberof ways of increasingthe capacityeven for one shift. In addition,if the plans out- lined here for unit exchangerepair and updated standardsare carriedout fully,there could be a much reducedneed for shop space,especially for freightcars. It is, therefore,recommended that all freightcar and passenger car heavy overhaulbe consolidatedin the Taejon workshopconcurrent with the expansionof the unit exchangesystem of repair and updatingof maintenance standards(discussed in paras. 5.19 and 5.20). In addition,it is recommendedthat annual schedulemaintenance work on locomotivesand passenger cars, some of which is now being handledat sheds, be performedonly in the back shops. Likewise,emergency repairs such as replacementof a failed traction motor or super turbo-charger,and other major components,should only be done in the back shops. Becauseof the size of the KNR system,the savingsin inventoryalone will more than pay for the transportof the unit to the back shop where the work can be done quicklyand with more reliableresults.

5.19 It is clear from reviewingthe time schedulesfor completing periodicmaintenance work under presentcircumstances that too much rolling stock time is being lost in the shop while the componentsare being repaired and re-assembledon the unit. This can be correctedby adoptinga full-scale unit exchangerepair systemfor locomotivesand cars. The approachhas been used effectivelyon many successfulrailways in recent years, and would be especiallybeneficial to KNR. The systeminvolves development of a pool of spare componentswhich can be kept ready for applicationto the unit undergoingoverhaul. As soon as the old componentis removed,it is put througha specializedrepair line where the componentis rebuiltand returned to the shelf for applicationto anotherunit. Meanwhile,the rolling stock unit is ready to go into servicewith newly rebuiltcomponents within a few days (threeor four days for a completediesel locomotiveoverhaul if the systemis fully adopted comparedto 14 days now). Less dramaticbut still significanttime savingscan be realizedin repairsto passengerand freight cars.

5.20 An examinationof KNR's maintenancestandards indicates a need for updatingand streamliningthem. For example,it has been found in North Americanrailways, where the work requirementsfor diesel electriclocomotives is more severethan for KNR with the same motive power units, the monthly inspection(and maintenance)is not necessary. Also, power assemblychange- out is not necessaryat two-yearintervals. Instead,they are changedif their conditionfound on inspectionwith modern inspectionmethods warrants it or on schedulesof up to 4 years. In anotherexample, wheels on all types of equipmentshould be changed-outor recontouredonly when needed,and not just because the equipmentis in the shop. Wheelsare one of the most expensive items in any railwaymaintenance system and, therefore,should be maintained to standardswhich allow optimumpossible wear. It is recommendedthat all of KNR's maintenancestandards be reviewedand revisedin the light of the experienceof other railways,and in the lightof modern materialsand managementtechniques. - 34 -

5.21 The approachabove can reduce the need for new rollingstock and generatesubstantial cost reductionsthrough more effectiveutilization of maintenanceresources. rnvestmentneeded for these improvementswould be substantial,but the benefitswill be largerand long lasting. Provisionof data managementfacilities (para. 8.25), along with the purchaseof a spectographfor lubricantanalysis, would contributeeven more to KNR's maintenancecapability. Estimatesof the costs are given belowt

Workshopimprovements US$10.0million Unit exchangespares US$20.0million Trainingand technicalassistance US$0.5 million

Total US$ 30.5 million

C. Summaryof Recommnendations

5.22 KNR has a relativelymodern fleet of diesel locomotivesand rolling stockwhich are well maintainedand have good availability--90Xfor diesel locomotivesand 95% and 96% for passengerand freightcars, respectively. However,maintenance methods and practicescould be modernized,resulting in even higher availabilityand betterutilization of assets. Measuresneeded to accomplishthis are as follows:

(a) updateand streamlinemaintenance standards: (i) review locomotive maintenanceand repair standardsand schedules;(ii) review passengercar maintenanceschedules and standards;and (iii) review freightcar maintenanceand repair schedulesand standards;

(b) enforceunit exchangesystem of repairs:(i) procurea pool of spare components,sufficient to allow full scale unit exchangerepair of locomotives,passenger cars, and freightcars: (ii) rearrange workshopsupport units to provide for the ifficientremanufacture of all criticalcomponents involved in the unit exchangesystem;

(d) expandMIS to includeall aspectsof motive power and rolling stock maintenance. - 35 -

VI. ELECTRIFIEDOPERATIONS

A. The ElectrifiedNetwork

6.1 The two electrifiedportions of KNR, totaling428 km, are designed for two distinctlydifferent services:

(a) commuterservice in the Seoul metropolitanarea; and

(b) heavy industrialfreight and passengeroperations in the area east of Seoul to Weonju to Jecheonto Pukp'yongon the east coast.

The commutersection is a low voltageDC systemof 91 route-kmwhere 480 electric railcarsare operatedby SMESRS. The industrialelectrified line comprises328 route-km. This system is a 25KV AC arrangementwhich is operatedwith power from the Korean ElectricPower Company(KEPC) grid which is 155 KV. This power is distributedto the railwaysubstations at 55 KV where it is steppeddown to 27.5 KV for the catenary. On this line, sub- stationsare locatedon average about 40 km (25 miles) apart.

B. Operationson the ElectrifiedSections

6.2 The commuteroperation is supportedby modern railcarswhich are well maintainedin modernworkshops using up-to-datemethods. The system has a high operatingratio at 95Z but, since it has little impacton the main KNR system,it will not be discussedfurther in this report.

6.3 The industrialelectrified operation serves the mountainousarea southeastof Seoul to Pukp'yongon the east coast,which is mostly single track. This area producesmuch of Korea'scoal, part of which is transported west to power plantsand part east for exportfrom the east coast. The system must negotiateheavy grades of up to 3Z along with many sharp curves. When the relativelydense passengertrain operationsin the area are considered, the situationrequires careful management if the operationis to avoid losses. The fact is that the coal operationis a money-losingone as prese!itlymanaged. Some factorscontributing to this loss are found in the coal :rainconsist and its operationover the road. The trainsconsist of 20 to 30 carloadsfor a gross train weight of only about 2,300 tons, including two 3,000 lipelectric locomotives. This equatesto about 2.6 hp per ton of train as opposed to a ratio of about 1.0 hp per ton in most heavy-haulopera- tions in similargrade and curve conditions. The excesshorsepower provides accelerationand speed potentialfor the coal trains to cope with the higher speed passengertrains operating in the same territoryand it also adds a degreeof reliabilityto the coal train operationso that locomotivefailures en route are not a problem. The cost of this kind of operationis, however, very high and may be a major factor in KNR's financiallosses on the coal movements. The solutionlies in operatingheavier trains with lower horsepowerto gross trailingload ratio. - 36 -

6.4 Observationsmade while ridingsome electriclocomotives with trains on the electrifiedlines confirmthat the locomotivesare being underutilized. There were no wheel slips and the power outputwas such that the traction motorswere well below the allowableoverload zones during the observedruns.

C. ElectricLocomotive Fleet

6.5 KNR's electriclocomotives are of reasonablymodern 3,000 hp 25 KV AC design by the 50 Cycles Group (basicAlsthom design), which are beginning to be assembledin Korea by Daewoo Heavy Industriesunder license. They range in age from 7 to 14 years (24 are 7 to 11 and 66 are from 11 to 14 years). The fleet is maintainedfor the most part at the Seoul backshopwith some lighterwork done at Jecheonworkshop and at first glance appearsto be in good condition. Examinationof the details,however, indicates that there are some problemswhich should be resolved. In additionto the under-utilization discussedabovet availability is unacceptablylow at 86e7X. Consideringthe size of the fleet, the small network,and the light operation,the electric locomotivesshould be availableat least 95% of the time.

D. ElectricLocomotive Repair and Maintenance

6.6 An analysesof the out-of-servicetime shows that scheduledmain- tenanceactivities account for at least 6X of the out-of-servicetime, and may indirectlyaccount for even more. For example,removal of transformerson a regularbasis to filter the oil may contributeto unexplainedtransformer failuresthrough lifting on and off the locomotive. The presentmaintenance systemat KNR is the classic schedulefor progressivelyheavier maintenance as the time cycle progresses. This type of "preventivemaintenance" is based on the theory that major failuresare therebyprevented and availabilitywould remain at the highestpossible level. The approachhas been shown to have seriousflaws and many railwayshave demonstratedthat it is economically advantageousand technicallypossible to maximizethe utilizationof motive power before lettingit go to the shop for maintenance. Such an approach requiresthe usc of a number of sophisticatedtechniques which have been developedto a high degree of effectivenessover the past 35 years or so (discussedin paras 6.10 and 6.11). The presentKNR electriclocomotive maintenanceschedule is shown below:

PRESENTELECTRIC LOCOMOTIVE MAINTENANCE SCHEDULE

Schedule Days allocated

Daily 0.25 2 weekly 0.50 1 monthly 0.75 3 monthly 1.0 6 monthly 1.2 1 yearly 8.0 2 yearly 14.0 4 yearly 15.0 8 yearly 23.0 - 37 -

6.7 The time allocatedfor scheduledmaintenance is equal to an average of 22 days per year per locomotive,or more than 5 locomotivesper year for the fleet of 90 units. The remainderconsists of a combinationof component failures,transport to the workshop,waiting to get in the workshop,and waiting for replacementcomponents. While the repairwork done on componentsmay appearto meet requiredstandards, the light load serviceof the locomotives does not indicatea failurerate high enough to accountfor the excessout-of- servicetime. Observationsindicate that some of the repair proceduresfor rotatingequipment, such as tractionmotors and blowers,may fail to add the expectedlife to the components,thus contributingto prematurefailures. A detailedexamination of all of these aspectsof electriclocomotive operation and maintenancecould producepolicy redirection to improvethe productivity of theseassets. Consideringthe nature of the operationand the high quality of repair staffavailable, it would be reasonableto expect availabilityof at least 95% for the electriclocomotive fleet, while at the same time improving their productivty. To attain this, a four-prongedapproach is recommended:

(a) rearrangeoperations to run heavier trains;

(b) review and streamlinerepair and maintenancestandards and practices;

(d) installat the Seoul backshopa full-scaleunit exchangesystem of repair for electriclocomotives and also a full-blownmotive power electricequipment rebuild shop for all major electriccomponents of motive power.

6.8 The presentelectrified train operationsapproach attempts to schedulethe coal trains and other freighttrains so that they do not interferewith the faster, lighterpassenger trains. In essence,the freight trainsmust performlike passengertrains. This approachclearly cannot succeedfinancially even if it were possibleto providethe needed physical performance.The low tariff rates requiredto allow KNR to attractand retain such commoditiesas coal, coupledwith the energy requiredto make the coal train performlike a passengertrain, presentsan impossiblesituation. The alternativethen is to find a way to handle the heavier freighttrains in a more economicalmanner, especiallyconsidering the presentnegative financial impactand the high profit potentialof coal traffic. The most feasible trafficsolution is to make way for one or two large coal trains each day. The trains shouldbe at least 5,000 gross tons and possiblyas much as 7,500 tons. These trains should be operatedwithout attempting to put them in sidingloops, and yard operationsshould be geared to handle them quicklyon arrival. This may require some bold initiativesin reschedulingpassenger service,but it must be done. There is no capitalcost involvedbut there is much to be gained in savings in operatingcosts. - 38 -

6.9 Maintenancestandards and practicesin place in KNR for electric motivepower (as for dieselelectric locomotives) is a time-basedsystem with schedulesto performa given list of maintenanceprocedures regardless of actualcondition or need (para.6.6). The shortcomingsof this systemare evidentin the KNR motive power fleet in that the fleet is in reliablecondi- tion but the system itselfconsumes too much locomotivetime while at the same time it creates failuresof componentsthrough unnecessary disturbance of the machine systems. In addition,the cost in terms of excessivefleet size and direct maintenanceare higher than required. It is, therefore,recommended that KNR undertakea comprehensivereview and streamlineits maintenance standardsand practiceswith a view to bringingmotive power availabilityup to at least 95% in the next three years.

6.10 To supportthe new maintenancepolicies which would grow out of the recommendedreview, KNR shouldalso developas part of an expandedMIS a full- scale maintenancedata base with input from all asrectsof operationsand maintenanceactivities. This data base shouldbe used to supportdecisions for optimummaintenance and repair. The data base would containdetails on, each unit's operations,repairs, maintenance, and a number of other facts relatingto the actual conditionof the unit, and the guidelinecriteria for correctiveactions.

6.11 The review of standardsand practicesshould look at each item of repair/maintenanceto re-establishthe optimumbasis for repair/maintenance action. This would take into accountthe experienceof other railroadswhere similarequipment is operatedand might entail some outsideassistance. The ultimategoal would be to establishmaintenance/repair policies based on optimumstandards and procedures. This comprehensivereview and restructuring of policycan be expectedtp improveelectric locomotive availability by at least 3% with only a small additionalinvestment of about US$1.0million in data managementfacilities and study/trainingtours.

6.12 Fragmentedworkshop activity for electriclocomotive maintenance shouldbe eliminated. At presentsome tractionmotor change-outwork and a few other componentsare being handled at the Jecheon shop which requiresthat a stock of expensivecomponents be maintainedat both Jecheonand the Seoul backshop. In additionto facilities,trained personnel must also be available at both shops. The Seoul backshopis fully equippedto do all neededmain- tenancefor electriclocomotives and the work should be centralizedthere. This would providesavings in facilities,manpower, and inventory. It is also likelyto minimizethe chancesfor componentfailure throughconsistent, high qualityworkmanship. The recommendedconsolidation would cost nothingexcept for possibleone-time transfer cost for some empLoyeesfrom Jecheon.

E. Unit ExchangeSystem

6.13 The unit exchangesystem of repairsis a well establishedprogram for the efficientoverhaul and maintenanceof railwayrolling stock, especially locomotives,which are expensive. The system involvesprocurement of a stockpileof major componentsso that, when a locomotiveor other railway equipmentarrives at the shop, the failedor worn componentis removedand replacedwith a unit from the shelf which had previouslybeen repairedor - 39 -

rebuiltto "like new" standardsin an efficientfacility with highly skilled personnel. The benefitsof the systemare:

(a) improvedavailability--shop time can be reducedfrom 23 days to as littleas 2 or 3 days for a completelocomotive rebuild, and similar savingsare possiblewith lesserrepairs;

(b) improvedlocomotive reliability--the repair/rebuild work performedon componentsis of much higher qualitydue to the specializedfacilities used and the skills developedby the highly trainedworkmen;

(c) longer locomotivelife--the higher qualitycomponents produced by the system last longer and also contain the latestmodifications availableto make them better;and

(d) reducedmaintenance cost--systematic remanufacture methods coupled with specialfacilities, designed especially for the job, handling high volumesof work, producethe most cost-effectiverepair/maintenancework.

The cost of such a system for KNR's electriclocomotives is estimatedto involvean investmentof only US$5.0million.

6.14 In additionto the unit exchangesystem described above, it is recommendedthat KNR discontinuecontracting to outsidefirms maintenance/ repair of its electrictraction rotating equipment and associatedmotor and transformercomponents. It was observedthat a large number of units are being scrappedeach year becausethe contractorsare not offeringthe full line of serviceneeded to efficientlymaintain this criticalequipment. Also the qualityof productsreturned to KNR does not appear to be the best attain- able with today's technology. There is a sufficientquantity of components, given the diesel electriclocomotives, the electriclocomotives, and the electric rail cars, to justifya full scale electriccomponent rebuild and maintenance shop for KNR. Based on the number of units to be transported,availabilityof existingfacilities, availability of skilledmanpower, etc., the logicallocation would be Seoul. To minimizethe cost of the facilityand of the inventoryof spare parts, fragmentedarrangements should be avoided. The cost of a unified facilityis estimatedat US$5.0million. The total cost of the new arrangementscould be summarizedas follows:

Workshopimprovements US$5.0million Unit exchangesystem spares US$5.0million Trainingand technicalassistance US$0.5 million

Total US$10.5million - 40 -

F. Future Electrification

6.15 Constructionis in progresson the electrificationof the Jecheon- Yeongjusection which will be the secondleg of the Jecheon-Yeongju-Choram triangLe. This expansionis in the mountainouscoalfield area southeastof Seouland is a logicaladdition to the presentelectrified network. The investmentplan also calls for purchaseof nine additionalelectric locomotives to supportoperations on the additionalroute. A prototypeis scheduled for deliveryin 1987, three units in 1989 and the remainingfive in 1990. The additionalunits would be neededand perhaps justifiableif no changesare made in the operationsand maintenancepolicies as recommendedhere, but, if remedialaction is taken promptlyit should be possibleto delay deliveryof some of the new units.

6.16 A proposalfor higher speedson the Seoul-Pusancorridor route in the next decadecalls for possibleelectrification as a means to efficiently providethe additionalhorsepower neede4 and to take advantageof the other inherentadvantages of electrification.Additional horsepower, in itself, will not providethe higher speedsenvisaged. The presentoperations are at about maximumattainable speed becauseif track geometry,especially curva- ture. In order to maintainpresent schedules, it is now necessaryto speed up to close proximityof the curves,slow down quicklyand immediatelyaccelerate back to maximumrunning speed. Such an operationis inefficientand expensive in rail and wheel wear and in fuel consumption,but is about the only way to maintainthe present schedules. The horsepoweravailable in the present diesel electricunits is adequatefor the task and additionalpower, either electricor diesel,would be a waste. It is clear that, if train speedsare to be increasedsignificantly, the track geometrywill have to be improved. This will be quite costly and must, therefore,be carefullyconsidered in planningfuture operations.

G. Summaryof Recommendations

6.17 To improve its electrifiedoperations, both to providebetter serviceand to reduce costs,KNR should (a) rearrangeoperations to increase the tonnageon each train;(b) consolidateall electriclocomotive repair and maintenancework in the Seoulbackshop; (c) expandMIS to includeall aspects of electriclocomotive maintenance and operation;and (d) installa unit exchangesytem of repairfor betterlocomotive availability and better utilization of workshopfacilities. - 41 -

VII. FINANCES

A. Accounting

7.1 The accountsof KNR are well maintainedand are relativelycur- rent. The annual financialstatements for the year ended December31, 1985, were finalized,and reviewed,by June 12, 1986. They are kept on an accrual basis and are commerciallyoriented. All revenuesand expensesore allocated to passengerservices or goods haulageby lines and sections,and by cost functions. The detailedcost accountingis combinedwith the financial accountingfor controlpurposes. Performancebudgeting has been implemented to a certainextent.

7.2 The accountingfunction is but one part of the Management InformationSystem (MIS). At presentthe MIS is not being used as effectively for managementpurposes as is desirable,and this is KIR's major area of weakness. To properlyand efficientlyuse an MIS,system, it must cover car controlapplications (see also para. 8.24). Informationmust also be directed to the responsibleofficers in a timelymanner, and in a readilyuseable format. Usually this is accomplishedby establishinga Users Committeewhich is responsiblefor determiningwhat informationshould go to each department; at what intervals;and in what detail. Too much data may be as counter- productiveas too littledata, Also the timingof informationis important: some may be requiredwithin a short time span for managementaction, while other data may only be requiredat monthlyor quarterlyintervals. A Users Committeeshould be set up to assist the data processingcenter in determining these factorsand to ensure that the prioritiesare adheredto. This commit- tee shouldset prioritiesfor furtherapplications of MIS and for acquisition of operationalsoftware.

B. OperatingResults

7.3 KNR operatedat a loss during the period 1981-85. However,the revenuescovered working expenses(before depreciation) in all years, and in additioncovered the depreciationin 1984 and 1985. Interestwas not covered in any of the fiscal years. This was primarilydue to low tariff levels relativeto presentcosts, particularly on the Pidulgi passengerservices (estimatedat W 80 billion in 1985). The most recenttariff increasewas effectiveMay 1, 1985, but this was not adequatein respectto all services (see para. 7.6 below). Changesin the tariff schedulerequire the Government'sapproval which, with the exceptionof passengerservices, is usually forthcoming,although this can take severalmonths. KNR enters into negotiatedrates with large shipperswho guaranteea certaintonnage. The reducedrate appliesonly if the stated tonnageis attained;otherwise the full tariffis charged. Goods carriedat negotiatedtariffs, however, representonly a small percentageof total tonnagecarried. Most of the operationalstatistics showed improvementduring the period. The number of employeesdecreased by 71; the number of passengerscarried increasedby 121; and net ton-kilometerswere up by 14Z. Detailsof the operatingresults are given in Table 7.1. - 42 -

7.4 Balance sheets for 1984 and 1985 are given in Table 7.2. Working capital is negativein each of the years with currentliabilities approxi- matelydouble the currentassets. This to a large extent is due to the heavy repaymentschedule of the long-termdebt and the continuingnet losses.

C. Traffic Costing

7.5 KNR maintainsa detailedtraffic costing system which allocatesfull costs to all trafficwhether passenger or freight,by type of passenger service,and by commodities. Specificcosts which can be identifiedas applyingto a particularservice, commodity, section and line are applied directlyto that service. Common costs are assignedon the basis of locomotive,passenger coach, or wagon kilometers. Any residualcosts are then assignedon a pro rata basis.

7.6 An analysisof revenuesearned togetherwith the full costs incurred during 1985 is given in Table 7.3. Passengerservice in total lost W 38,468 millionwhile goods servicelost W 4,209 millionduring FY85. The loss in passengerservices was mainly in the ordinarypassenger trains and to some extent in baggage service. The revenuesdo not includethe Governmentsubsidy (whichis not servicespecific) but representthe actual amountspaid by the customers. The loss on the freightoperations arises primarilyfrom the transportof coal, fertilizerand grain, all bulk commoditiesin the transport of which the railwaynormally enjoys a comparativeadvantage over road transport. On a commodity-by-commoditybasis the requiredtariff increasesto break even are approximately25% for fertilizerand 5X for grain and coal. Part or all of the excess cost could conceivablybe reducedthrough efficiency improvements.The full costs set out in the table includeworking expenses, provisionfor depreciationand interest.

7.7 For the purposeof tariff determinationthe costingsystem could be improvedby separatingthe trafficcosts in the followingmanner:

(a) workingexpenses - representall expensesexcept provision for depreciation,interest and managementoverhead. When these working expensesare deductedfrom the appropriaterevenues, the result will indicateif the individualservices and commoditiesare covering their operatingcosts;

(b) depreciation- should be shown separatelyand, when deductedfrom the resultsobtained in (a), will indicateif the revenuesof each serviceand commoditycover not only the workingexpenses but also the depreciation(or contributeto a portionof the depreciation);

(d) interest- as currentlyallocated, is to be deductedfrom the resultsof (c).

7.8 If the presentfull trafficcosts are subdividedas describedabove, managementwill be providedwith all informationrequired to assess needed - 43 -

changesin the tariff scheduleand/or operations. Certaincommodities and serviceswith an inelasticdemand may be capableof carryingmore of the overheadand/or interestthan others,and this shouldbe factoredinto the tariff structure. But KNR should carry no traffic,including military traffic,which cannotpay for workingexpenses, depreciation and interest, unless the Governmentrequires it and pays for the differencethrough a specificsubsidy. The costing systemwould also indicateareas where efficiencyand cost reductionswould be most effectiveand on what services such effortscould yield beneficialresults and on which ones they would not be adequate. KNR shouldmonitor the effect on track and passengercar maintenancecosts of the higher Saemaultrain speedsin the Seoul-Pusan corridorand build these into a revised,updated costing system as soon as such data are available.

7.9 KNR cannot continueto provideindefinitely loss-making services in the hope of cross-subsidisingthese from its profitableservices, because (a) it even now lossesmoney on the carriageof many bulk commoditieswhich are its naturalmarket, and (b) any attempt to generatesufficient profits on profitableservices to lower its losseson other servicescould well result in the diversionof profitabletraffic to other modes, especiallyto trucks. The solutionlies in KNR abandoningthose serviceswhich it cannothope to operate withoutloss even if all possibleefficiency improvements are made. Ordinary passengerand baggageservice belong in this category. Bus and truck services shouldbe encouragedto develop to replacethese train services,if necessary by KNR itself initiallyproviding them, to be eventuallyhanded over to privateoperators.

7.10 On the freightservices, since KNR's lossesare mainly in items in which the railwayhas a naturaladvantage, efficiency improvements to reduce costs shouldhave top priority,followed by tariffadjustments to remedy any remaininggap betweencosts and revenues. Militarytraffic also shouldnot be carriedat below cost consistentwith optimumoperational efficiency in providingthe service. Should the Governmentdesire KNR to continueto provideany of the loss-makingservices at below cost, it should provideKNR a specificsubsidy to cover the loss on each such service.

D. Projections

7.11 KNR's trafficforecasts up to 1991 are set out in Table 7.4. Despite shortcomingsin the methodology(see para. 8.17), the figures are, on the whole, reasonable. Table 7.5 sets out the projectedoperating results through 1991 based on the forecasttraffic. The projectionsare prepared using a constantmonetary unit and, based on discussionswith KNR staff, assume a tariff increaseof 3% in 1987 and in 1988. Other assumptionsused in the projectionsare:

accountsreceivable will increaseat the same rate as the revenues;

accountspayable will increasewith the workingexpenses; and

the annual debt servicepayment of principalwill be applied to the existinglong-term debt and not to the local debt incurredto cover the annual negativecash flows. - 44 -

Based on the above, KNR will attainan overallprofit commencing in 1988 but will have negativecash flows throughoutthe projectionperiod, primarily due to high debt service payments. The projecteddebt/equity ratio in 1991 will be 47/53. Detailsof the projectedoperating statements are given in Table 7.5, projectedbalance sheets in Table 7.6, and the projectedcash flow in Table 7.7.

7.12 While it appears that tariff increasesabove 32 are requiredin each of the two years to producepositive cash flows,the same resultsmay be obtainedin other ways. Implementationof the recommendationsmade elsewhere in this report--increasednumber of wagons per train, increasedline capacity, and improvedturnaround time, etc.--willundoubtedly improve the profitability of KNR's operations,by approximatelyW 47 billiona year from the 1985 coal and containertraffic alone (para.4.26). Incidentally,since the projections are in a constantmonetary unit (1986),future tariff policymust take into consideration,among other factors,the impactof inflationon working expenses. - 45 -

VIII. ORGANIZATIONAND MANAGEMENTIMPROVEMENTS

A. KNR's PresentLegal Status

8.1 KNR continuesto functionas a quasi-businessenterprise as establishedin 1961. It is government-ownedand falls within the responsibilityof the Ministryof Transportation.The Covernmentappoints the Administrator, who functionsas the chief executive. The chief operatingofficer is the DeputyAdministrator who is responsiblefor day-to-dayoperations carried out by railwaystaff who are civil servants. The managementhas considerab,le freedomin managingrailway operations within the frameworkof government policyand civil serviceregulations.

8.2 The Governmenthas plans for the eventualconversion of KNR into a publiccorporation, now scheduledfor 1991. Railway staff are aware of this comingchange and generallyexhibit a professional,business-like approach to managingthe affairsof the railway. The greatermanagerial freedom which would flow from conversioninto a public corporationcould supportefforts to improveoperations generally and incidentallyto eliminatethe remaining operatingdeficit. The determinationof staffinglevels and budgetsfree of governmentinvolvement will be importantin achievingthis goal.

B. ManagementOrganization

8.3 There has been gradual change in KNR's formalorganization over the past eight years. Particularattention has been given to span of controland to adjustmentsnecessary in facingan increasinglycompetitive environment in both passengerand freighttransportation. A condensedorganizational chart appearsas Chart 31116. A rather large span of control for the head of a large railway enterprise,of at least 12 heads of departmentsplus the 5 regions,is somewhatmodified in actual practice. The critical,interdepart- mental coordinationdecisions are made by the Administrator. In day-to-day operations,the TransportationBureau and the Regions,under the Deputy Administrator,provide the transportationservices.

8.4 Maintenanceof rolling stock and infrastructureare organizedas separateand distinctfrom transportation,yet the high-qualityadherence to train schedulesis ample evidenceof good inter-bureaucooperation. Nevertheless,the establishmentof a secondDeputy Administrator position would reduce this extensivespan of controlfor the presentDeputy Administratorand probablyimprove coordinationo One Deputy Administrator shouldoversee day-to-day operations - transportation,equipment and track maintenance,marketing, regional operations and similarfunctions, and the secondDeputy Administratorshould oversee the headquartersactivities includingfinance, accounting, MIS, personnel,training, etc. This orga- nizationalchange will tend to supportthe KNR transitionto a public corporation.

8.5 Marketingis now includedin the TransportationBureau, a rather unusualarrangement in comparisonwith other railwayadministrations which have the marketingor commercialfunction as a separatedepartment. Since KNR - 46 -

has been experiencingsteady growth in trafficcarried, the unificationof train operationsand the commercialeffort has worked towardhandling pent-up demand to the satisfactionof shippers. However,it is likely that the increasinglychallenging task of competingwith other modes, especially highways,will createa change in emphasisto sophisticatedand aggressive marketing,that is, for increasingmarket share and even penetratingnew markets. To meet the changingrequirements, KNR shouldplace greater emphasis on market researchto help identifyand seek out new business,particularly in freight. Detailedstudies in this area are warranted.

8.6 As recommendedin ChapterIV, seriousconsideration should be given to establishinga separatemarketing/commercial department. This department could initiallybe headed by a DirectorGeneral, but may eventuallyneed a third DeputyAdministrator, when KNR becomesa publiccorporation. (The third DeputyAdministrator should then take over some other functions,such as marketing,planning and coordination,also.) KNR has problemswithin certain freightcommodity groups and classesof passengerservice that require researchand specificfocus on solutions. Lack of profitabilityin coal, seriouslosses in baggage service,provision of profitablebut inadequate containermovements, and losses attributedto ordinarypassenger services requireattention. The marketingdepartment should be organizedby freight commoditygroups and by passengerservices, to undertakemarket researchand planning,service development, pricing functions (tariffs) and to keep KNR abreastof other modes in providingservices to shippers.

C. Staffing,Training and Staff Development

8.7 Like other Governmentagencies and Ministers,KNR faces competition from private industryfor personnelwith particulartraining and capabilities. Governmentalentities generally are able to attractnew graduatesin the numbersrequired and train them for positions requiringspecial technical qualifications.But KNR has difficultyattracting candidates with advanced educationaldegrees for its ResearchInstitute. Salariesof such personnelin privateindustry range from two to three times those paid at KNR. It is recommendedthat KNR should increasesalary levelsfor functionalpositions that requireadvanced degrees and technicalexpertise that are also sought by privateindustry, obtaining the Government'spermission if necessary.

8.8 Each employeereceives from two to eight weeks' trainingat KNR's TrainingCenter in a five-yearcycle. As individualsmove into management jobs, course orientationshifts from technicaltoward managerial. At more senior levels,KNR managersattend generalgovernment courses in management development.

8.9 At approximatelythe ten-yearcareer point, for KNR employeesmoving towardmanagement roles, the emphasisshifts to broaderadministrative courses. These includeadministration of train operations,locomotive operations,rolling stock maintenance,infrastructure maintenance, signals (CTC) and communications,and the positionof the Deputy StationMaster. It should be noted that the KNR StationMaster is an operationalgeneralist who coordinatestransportation activities in a specificarea. - 47 -

8.10 The TrainingCenter employs55 permanentstaff. An additional30 instructorsin technicalfields are providedas needed from railwaydepartment personnel. The Center has a one-timecapacity of some 500 studentsand handlesa total of 5,OOO-6,OOOper year. It is now located at Youngsanand there are plans to relocateit at Pugok, both near Seoul.

8.11 Special programsare scheduledwhen new technologiesare introduced. Examplesare coursescovering the duomatictamper, track geometry cars, electriclocomotives, etc. Manufacturersand foreignrailway tech- nicians provideassistance when transferof new technologyrequires it. Aptitudetests are employedin selectingthose to be trained. Prospective locomotivedrivers are screenedfor both technicalaptitude and appropriate disciplinaryattitude. Those enteringcomputerization fields are likewise tested. Technicianstend to stay in narrow specialtycareer fields.

8.12 KNR also runs a two-yearjunior college which providestechnically qualifiedpeople at the entry level. Selectedstudents must sign up for five years of KNR servicefollowing completion of the collegecourse. Subject areas include: (a) transportation;(b) train operations;(c) track maintenance;(d) rolling stock;and (e) electrictraction and signals. The collegehas 200 studentsand graduates100 per year. In addition,the Governmentprovides KNR-EDP personnel special training at its EDP training center (juniorcollege).

8.13 An earlierconsultant study had recommendedto KNR that transferof personnellaterally between departments would serve to broadenmanagement. Bettercoordination of activitieswas expectedby exposingmanagerial-level personnelto challengesfacing other areas throughthis process. This career -'path"development program is being pursued. There certainlyis a high level of interestamong staff members in the activitiesand responsibilitiesof other functionalbureaus. Developmentof substantialdepth in management takes time; however,from every indicationKNR is making good progress.

8.14 :n additionto the routine trainingcurrently undertaken within the country,middle level KNR staff would benefit from a brief periodof training and study in the implementationand operationof (a) modern train operating methods,in particularCTC with bi-directionalcapability; (b) advanced methodsof diesel and electriclocomotive and rollingstock maintenance;and (c) passengerand freightmarketing techniques. KNR should initiatethis trainingat an early date in order to prepare itselfto benefitfrom implementingthe modern railwaypractices suggested in this report.

D. CommercialApproach

8.15 As statedearlier, the marketingor commercialfunction is located within the TransportationBureau and probablyshould be constitutedinto a separatedepartment. In the last five years, much of the focus has been on accommodatinggrowing freightvolumes and pent-updemand, especially in coal, cementand containers. It appearsthat freighttraffic demand is now being met by K1R except for time-sensitiveexport containers. Pricing initiatives have to some extent been appropriatelyoriented toward improvingKNR utilizationof availablecapacity. Productivityshows a steadyupward trend. - 48 -

8.16 Passengermarketing has emphasizedhigher-quality, higher-priced services,particularly in the Seoul-Pusancorridor (see ChapterIII). A problemis the decline in the use of ordinarytrains. Solutionswill necessarilyhave to be agreed with the Governmentbecause of the number of branch line services. Establishmentof alternatefeeder bus services,by eitherKNR or privatecarriers, should be exploredto facilitatetheir elimination.

8.17 Freightdemand forecastingis being used in the planningand budgetiagprocess. But it appears that market researchdoes not get an adequaterole in this work. The forecastingmodel keys in on population, incomeand industrialactivity and does not necessarilyreflect probable shiftsaway from anthracitecoal as home heatingfuel. Market researchmust addresschanges in underlyingdemands for passengerand freightservice and be flexiblein its approach. Extrapolationof past trends is not adequatefor planningfor the future,especially for investmentplanning. The greatest opportunityfor growth appearsto be in handlingexport containersfrom the Seoul area to Pusan. Intermodalcoordination with other modes and carriers beyond this one corridorshould also be studiedand appropriatefreight servicesintroduced. KNR should initiatedoor-to-door service on a single tariff throughemploying collection-delivery agents, initiallyat least in the main freightcenters.

E. ManagementInformation Syst

8.18 The introductionof a ManagementInformation System (HIS) was Initiatedin KNR in 1970 during the Third RailwayProject (Loan 669-KO). Early effortswere to mechanizevarious statisticaland accountingreports. KR's MIS underwentfurther modernization following agreement with the Bank duringnegotiations on the SeventhRailway Project. As a result,KDR has improvedits MIS by the additionof electronicdata processing(EDP) to a point where some financialrecords and certainother basic data are being reportedreasonably promptly to management. Still,MIS reportsare mainly used to review past performance,not to help forwardplanning. As this is a major weakness,KNR shouldplace emphasison improvingMIS capabilityto providetools needed to supportday-to-day commercial and operatingdecisions, especiallyfor locomotiveand car controlto improvecar utilizationand for mechanicalmaintenance to improveavailability.

8.19 Monthly reportsare now completed25 days after the month ends and distributedto all bureauheads and chiefs of regions. This is the only generalmanagement report distributed and shows the following: (a) passenger ridershipdata; (b) freightvolume data; (c) train operationsstatistics; (d) rollingstock (car) data; (e) locomotivemaintenance statistics; (f) revenue by class of traffic;and (g) other details. The format includesmonthly totals for the currentyear, prior year, and plan; cumulativefigures and percentagecomparison. These reportsare producedusing the batch processand followthe layout establishedin 1976. Manual reportsare furnisheddaily to the Administratorand key staff. EDP reportingand input do not now extend to the stationlevel and KNR shouldchange this policy in order to reduce cleri- cal effortand providelocal managerswith improvedinformation. - 49 -

8.20 EDP is alsoused for stockcontrol. Major items of inventoryare processeddaily as inputto the inventoryand accountingprocess. The remaining inventoryinputs are batchedbi-monthly.

8.21 Revenueand expensereportilg and propertyaccounting, including balancesheet entries, occupy some 80X of EDP activity.At year-enda compre- hensivestatistical volume is produced;this is usefulto the Governmentand otherentities which undertake special analyses of KUR'sperformance. EDP is alsoused in payrollaccounting and thisserves as inputto expensereporting set forthin the monthlyreport of overallKNR performance. 8.22 Of the 449 formalreports produced every month by KNR, 62X havebeen computerized,as follows:

No. of I reports Computerized Financeand accounting 128 74 Passengerand freighttraffic 168 75 operations 84 48 Personnelmanagement 16 0 Planning 53 28 Total 449 62

8.23 The one area KNR has computerizedfully and effectivelyis passenger ticketing.This was initiatedin 1979and the Railwaynow has a central reservationssystem that can communicatewith all railwaystations, travel agenciesand hotels. 8.24 KKR shouldextend EDP use in supportof operational,marketing and planningdecisions. MIS has beenused in car controlapplications on railways elsewherefor more than20 years. Earlyuse was to locateempty equipment by car type,to help reduceempty car movementin the supplyof cars to shippers.Refinements brought about determination of car conditionand the lastcommodity that was loadedin a car to avoidcontamination and car cleaningcosts. Somerailway administrations designate cars while stillunder loadto the next loadingpoint as soonit is emptyto saveidle car days. The most elementaryapplications improve equipment utilization and avoidcosts of manualrecord keeping and duplicationof effortby car distributionstaff. 8.25 In orderto extendEDP applications,KNR needstwo main-frame computerswith a least16 meg.memory and six channels.These should be installedin KRU headquarters,in Seoul. This systemwould provide adequate processingcapacity, with the secondunit serving as back-up. (At the same time,to improveco-ordination in containertrain operations between Pusan and Seoul,BCTOC should also buy a similarmainframe unit, which shouldbe linked to the KNR on-linesystem, with KNR's secondunit in Seoulserving also as its back-up).The mainframecomputers should be supportedby adequatesoftware in the followingareas: WaybillSystems, Consist/Work Order, Interline Received - 50 -

and Data Exchange,Equipment Management, Locomotive and RollingStock MaintenanceManagement, and RevenueAccounting. The cost of the above would be approximatelyUS$4.5 million for the hardwareand US$2.0million for the software.

8.26 The policy changesrecommended in this report can be implemented withoutan improvedMIS, but for maximum benefitwith minimum time-lag,a full scale computeraided MIS, which providesmanagement at all levelswith timely analyses, must be given high priority. It is extremelyimportant that an expandedMIS includeall aspectsof KNR's operations: sales, car distribution,motive power distribution,operations planning, operations control,rolling stock and motive power maintenance,financial situation, financialplanning, etc. As all levelsof managementare providedreliable and timelyinformation, the changesrecommended in this report will produce maximumbenefits in the shortesttime possibleand, even more important,KNR managementwill have tools for respondingspeedily and efficientlyas the demand for rail transportundergoes changes in the future. - 51 -

IX. RECOMMENDEDACTION PLAN

9.1 Althougha quite efficientrailway in some respects,KNR suffers from the continuationof some outmodedpractices, both in its locomotiveand rollingstock maintenanceand in its operations. In addition,it suffersfrom certainGovernment-imposed obligations, such as the provisionof ordinary passengertrain services,especially on its branch lines, baggage/parcels service,and coal, fertilizerand grain transportat rates that do not cover costs. As a result, its financesare less than satisfactory. It also has a seriouscapacity problem on its most importantdouble-track line betweenSeoul and Pusan where it operatesdaily 180 passengertrains and over 60 freight trains,a problemarising mainly from its presentoperating practices. To overcomethis, as well as other problems,the followingaction programis recommended:

(a) Seoul-PusanCorridor (Kyongbu Line):

(i) Since the number of passengertrains being operatedat present causes the capacityproblem, reduce the number of trainsper hour, while addingto or maintainingseating capacity as needed by providingmore cars per train,which the existinglocomo- tives can easily handle.

(ii) Through a judiciouscombining of separateclass trains into multi-classtrains, and with slightchanges in scheduling,open up two slots per hour for container/freighttrains which should be operatedat close to passengertrain speeds,or at least the maximumpresently feasible speed of 90 km./hour. Refine the schedulethrough simulation on a train performancecalculator.

(iii) With the above changes,add to the length of freighttrains, as the presentlocomotives have sufficientpower to pull more wagons.

(iv) Immediatelyinitiate the purchaseof 100 light-weight,high- speed containercar sets, while simultaneouslyupgrading the newer freightcars in the present fleet to operate at 110 km./hour,close to any but the fastest(Saemaul) passenger trains. The containercar sets would cost US$13 million and upgradingexisting cars about $200 for each car.

(v) With the prospectivecompletion of CTC on this line, add reverse-signallingcapability to the system to providefor bi- directionalrunning of trains when needed, in order to further augment line capacity. Begin trainingof staff in such operationsat the same time.

(vi) Initiateconstruction of a third track between Suwon and Chonan,which is now the most congestedsection on the line. - 52 -

(b) FreightOperations:

(i) Initiatethe operationof containertrains from the Pusan port containerterminal to the Pugok containerterminal near Seoul, bypassingPusan yard and stationwhich are bottlenecks.

(ii) Initiatecontainer train servicethroughout the day insteadof basicallyonly the overnightservice now offered.

(iii) With the introductionof the recommendednew containercar sets into serviceon the Seoul-Pusanline, transfersome of the older cars to providea shuttlecontainer train servicebetween Inchonport and the Seoul area.

(iv) Improvethe terminaloperations of coal trains to eliminate labour-intensive,time-consuming, and expensivemanual handling.

(v) Operatethe maximum number of freight cars possibleper coal train.

(vi) Ensure the full loadingof coal cars throughthe tariff system.

(vii) To preventoverloading and collectionof full tariff,purchase and installtwo or three automatic,electronic weigh-in-motion scalesat appropriateplaces.

(viii) Operate longerfreight trains than now--35-45cars compared with 20-30.

(i) Updateand streamlinemaintenance standards

- review locomotivemaintenance and repair standardsand schedules;

- reviewpassenger car maintenanceschedules and standards; and

- review freightcar maintenanceand repair schedulesand standards.

(ii) Expand unit exchangesystem of repairs

- procurea pool of spare components,sufficient to allow full scale unit exchangerepair of locomotives,passenger cars, and freightcars; - 53 -

re-arrangeworkshop support units to providefor the efficientremanufacture of all criticalcomponents involvedin the unit exchangesystem;

consolidatepassenger and freightcar repairs in Taejon workshop;

continuediesel locomotiverepair and maintenanceat the Pusan workshop;

consolidateall electriclocomotive repair and maintenance work in the Seoul backshop,installing a full-scaleunit exchangesystem and a motive power electricequipment rebuild shop for all major electriccomponents of all locomotives;and

expandMIS to includeall aspects of motive power and rollingstock maintenance.

9.2 The estimatedcost of implementingthe above recommendations, withoutprovision for contingencies,can be summarizedas follows:

US$ million

100 light-weightcontainer car sets 13.0 Upgradingexisting freight cars 0.5 Train performancecalculator 1.0 Kyongbu line track and signallingmodifications 2.0 Diesel and rollingstock workshopimprovements 10.0 Unit exchangespares for above 20.0 Electricalworkshop improvements 5.0 Unit exchangespares for above 5.0 MIS system 6.5 Trainingand technicalassistance in all of above 2.0

Total 65.0

9.3 To assist the efforts in operationsand maintenance,and to give its operationsa more businesslikeorientation, KYR should initiatedetailed studiesin marketingand market researchand establisha stiff group to supportand initiatefurther operational changes and improvementsas may be needed, includingthe provisionof inter-modalservices. The Government should supportthese effortsby giving KNR independentlegal status so that it can operate free of governmentregulations that inhibita commercial, business-orientedapproach.

9.4 The implementationof the recommendedchanges would, in all likelihood,place all of KNR's operationsin a profit position,with the exceptionof ordinarypassenger trains, especially branch line services,and baggage/parcelsservice. KNR should take steps to have these services providedby road, if necessaryat subsidizedrates and by contractwith privatebus and truck operators. - 54 - ANNEX 1 Page 1

KOREA

KOREANNATIONAL RAILROAD: REVIEWOF OPERATIONALEFFICIENCY

RailwayInvestment Program: 1987-91

1. The investmentprogram for railwaysduring the currentPlan period (1987-91)should be evaluatedin the contextof the Govertment'sprincipal objectives. The Governmentgives high priorityto dispersingthe population and economicactivities which are now concentratedin urban areas. The primaryvehicle to help achievethis objectiveis to be balancedinvestments among the variousregions in all infrastructuresectors, including transport and communications.

2. Becauseof the enormousinvestments involved in the currentEconomic and Socialdevelopment Plan, prioritieshave to be set among investmentsin the transportationsector on the basis of a comprehensivetransportation system in which differentmodes are allocatedroles for which they are most appropriate. In this approach,the railwaywill concentrateon long distance, high-volumetransportation; highways on medium-and short-distancetransporta- tion for the collectionand deliveryof goods; coastalshipping on bulk cargo not requiringspeedy movement; and airlineson long-distance,high-speed passengermovement (especially for officialand businesstravel), and proposed investmentsare based on these premises.

3. Accordingto the Plan, KUR will spend W 1,462 billion (US$1.68 billionequivalent) during 1987-91on developmentprojects (See page 4 of Annex). Some of these expendituresare for completingongoing works and some for works which will be carriedover to the next plan periodfor completion. Of this total,approximately W 785 billion(46%) relatesto improvementof existingfacilities (signalling, telecommunications, etc.), and to motive power and rollingstock.

4. Pursuantto the generalpolicy directions laid down in the Five-Year Plan, the principalobjective of the new railway investmentprograms is to cope with more specializeddemands to move commoditiesto meet long-distance, high volumepassenger and bulk freighttransport, and to respondto the growingdemands for suburbancommuter services in the Seoul Metropolitan Area. Accordingly,a third track will be built (1988-94)between Suwon and Chonan (55.6 km), a congestedand heavilyused sectionof the Seoul-Pusan corridor. An additionalelectrified double-track will be laid betweenSeoul and Kuro (11.7 km) to help meet increasingcommuter traffic in the metropolitan area. The electrifieddouble-tracking (1988-91) of the Kumjong-Sadang line (15.4 km) will serve the same purposeand furtherdevelop the electrified railwaynetwork around Seoul. Improvementof rail track between Iri and Yosu (199.1km) on the Cholla line will be initiated(to be completedin 1995) to providelong-distance freight transport to the new industrialarea and steel mill (whichhas just gone into production)and to serve the new port being constructedat KwangyangBay near Yosu. This line improvementwill give rail access to the Seoul-Pusancorridor through the Honam line for the new 55 - ANNEX 1 Page 2

industrialarea in one of the poorestregions of Korea and promotebalanced regionaldevelopment.

5. In addition to the new investmentsdescribed above, severalprojects carriedover from the Fifth Plan period (1982-86)will be completed. These includedouble-tracking, electrification and installationof central traffic control (CTC)on variousmain lines which will improvecapacity and assist KNR to exploitits comparativeadvantage as an economiccarrier of passengersand freightover long distances.

6. The sectorpriorities indicated in the Plan documentare fully justified. The consequentstrategy to give priorityto long-distancepassenger and bulk freight servicesand exploitKUR's comparativeadvantage is well conceived. The major new railwayinvestments are responsiveto this strategy and to the need to furtherdevelop commuter services in the Seoul Metropolitan Area to providebetter integrationwith the subwayand counterthe increasing motorizationof the Seoul area.

7. Althoughno detailedtraffic analyses have been undertakenfor this reportto determinethe relativepriorities of plannedinvestments, it must be mentionedthat project selectionand evaluationprocedures are well developed in Korea. The evaluationprocess in the Government(which involves EPB and the Ministryof Transportationin the case of rail investments)is an effec- tive one and strict criteriaare applied to ensure that the most economic investmentsare approvedfor each Plan period. The Governmenthas agreed, under ongoingloanst that major changesto the investmentprogram will only be made with the Bank's concurrence. The investmentprogram is revisedand modifiedfrom time to time dependingon trafficgrowth, resource availability and new developments,and is reviewedby the Bank in the course of supervision of these projects.

8. The Five-YearPlan also authorizesthe Governmentand KNR to conduct a detailedtechnical feasibility study and examinefinancing plans to deter- mine by the end of the currentPlan period (1991)whether to constructa high- speed electrifiedrail line betweenSeoul and Pusan. Althoughstudies financedby Bank loans have establishedthe technicaland economicfeasibility of a High Speed Train in this corridor(1983-84) with reasonablecertainty, the Bank recommendedfurther study of projectedpassenger travel demand on the plannednew system. Such studiesand preliminaryengineering can be meaning- fully carriedout only after tentativedecisions on systemconfiguration (number,type and locationof stations)and local content(choice between foreign technologyand indigenousdesign and financingoptions). The remaining technicalissues and the financingoptions should be studiedduring the currentPlan periodbefore decisionsare taken on buildingthe new track in the next Plan period (1991-95),taking into account the impactof this report'srecommendations for efficiencyimprovements which KNR could undertake with relativelymodest investments(in relationto the overall investment program). These investments,described in the report and summarizedin the recommendedaction plan, will help to improveKNR's technology,line capacity, freightoperations, locomotive and rollingstock availabilityas well as its general standardsand railwayfacilities, with substantialeconomic and financialbenefits in relationto the costs to be incurred. - 56 - ANNEX 1 Page 3

9. All major items of investmentin the Plan, especiallyin locomotives and rollingstock, shouldbe carefullyreviewed in the light of this Report's recommendationsfor improvedoperational and maintenancepractices and a realisticassessment of the time needed to implementthem. ANNEX 1 Page 4

KOREA

KOREANNATIONAL RAILROAD: REVIEWOF OPERATIONALEFFICIENCY

Summaryof RailwayInvestment Plan

Billionwon

New Projects

Seoul-Kurothird track (11.7 km) 99.0

Suwon-Chonanthird track (55.6 km) 80.3

Sa Dang double tracking (1504 km) 144.0

Jun Ra Line improvements(199.1 km) 104.2

KyongbuLine stationimprovements 46.7

OngoingWorks

Ho Nam line double tracking(101.2 km) 70.8 Kyongbuline CTC (285.6km) 28.9 Tae Baek line CTC (126.8km) 3.5 Jeung Ang line electrification(64 km) 17.7 Ansan double tracking(20 km) 48.6 Kyonginline double tracking(12 km) 20.8 Nambu DistributionCenter 2.6 Kyongwonline double tracking(13.1 km) 5.7 Stationand workshopimprovements 226.5

Eguipmentand RollingStock

Signallingand communicationsequipment 99.2 Locomotives(220), coaches (393) and wagons (1,985) 459.3

Studies

Kyongbunew line feasibilitystudies 4.0

Total 1,461.8 58- Table 2.1

KOREA

KOREAN NATIONALRAILROAD - REVIEW OF OPERATIONALEFFICIENCY

Share of PassengerTraffic by Type of TransportMode

1980 1981 1982 1983 1984 1985

Volume (million)

All modes - No. of passengers 8,477 9,135 9,714 10,456 10,702 11,108

- Passenger-km 87,921 90,168 94,408 98,317 99,879 102,264

Railroad- No. of passengers 497 441 444 469 489 495

- Passenger-km 22,908 21,816 21,034 21,688 21,884 22,489

Highway- No. of passengers 7,970 8,683 9,259 9,976 10,201 10,601

- Passenger-km 64,083 67,315 72,110 75,147 76,398 78,025

Marine and - No. of passengers 10 11 11 11 12 12 airway - Passenger-km 930 1,037 1,264 1,482 1,597 1,750

Share (X)

Railroad 26 25 23 22 22 22

Highway 73 74 76 76 76 76

Marine and airway 1 1 1 2 2 2 -59- Table 2.2

KOREA

KOREAN NATIONALRAILROAD - REVIEW OF OPERATIONALEFFICIENCY

Share of FreightTraffic by Type of TransportMode

1980 1981 1982 1983 1984 1985

Volume

All modes - Tons ('000) 174,726 175,241 182,497 205,966 229,079 238,218

- Ton-.

Railroad - Tons ('000) 49,009 48,761 47,437 50,478 53,661 55,346

- Ton-km (million) 10,798 10,815 10,892 11,629 12,033 12,296

Highway- Tons ('000) 105,973 104,256 108,576 126,403 143,629 148,699

- Ton-km (million) 4,975 4,868 5,097 5,943 6,762 7,233

Marine and - Tons ('000) 19,744 22,224 26,484 29,085 31,789 34,173 airway - Ton-km (million) 7,757 7,934 7,892 10,112 11,163 11,434

Share (%)

Railroad 46 46 46 42 40 40

Highway 21 21 21 21 23 23

Marine and airway 33 33 33 37 37 37 - 60 - Table 2.3

KOREA

KOREAN NATIONAL RAILROAD- REVIEW OF OPERATIONALEFFICIENCY

PassengerTraffic

1980 1981 1982 1983 1984 1985

PassengerTraffic Trend Number of Dassengers(million) 431 441 444 469 489 495 Passengers/day('000) 1,177 1,208 1,215 1,286 1,336 1,355 Passenger-km(million) 21,640 21,816 21,034 21,688 21,884 22,489 Average km/person 50.2 49.5 47.4 46.2 44.7 45.4

PassengerTraffic bY TyQe of Service (-000 passengers) IntercltY Saemaul express 2,455 2,219 1,949 1,883 1,867 2,142 Air-conditionedexpress 3,002 8,828 9,652 10,828 13,082 16,959 Express 35,608 32,176 33,424 37,732 40,708 42,534 Ordinary 125,050 111,788 100,537 86,946 76,824 70,879 Commuter 18,884 17,844 16,986 16,321 14,641 13,450

Subtotal 184.997 172,765 161.548 153,710 147.122 145,964

Seoul suburban 245,776 268,364 282,022 315,713 341,939 348,698

Total 4 441,129 443?570 469,423 489.061 494,662 Passenger-kmby TYRO of Service (million km) Intercity Saemaul express 797 722 641 607 589 686 Air-conditionedexpress 727 2,039 2,210 2,585 3,070 3,701 Express 8,139 7,196 6,984 7,680 7,948 8,280 Ordinary 7,113 6,185 5,598 4,801 3,979 3,585 Commuter 428 410 405 400 375 364

Subtotal 17.204 16.552 15.838 16.073 15.961 16,616

Seoul suburban 4,436 5,264 5,196 5,615 5,923 5,873

Total 21.640 21.816 21,034 21,688 21,884 22,489

Average Length of PassenRer Travel (km) Intercit Saemaul express 324.6 325.4 328.9 322.4 315.5 320.3 Air-conditionedexpress 242.2 230.7 229.0 238.7 234.7 218.2 Express 228.6 223.6 209.0 203.5 195.2 194.7 Ordinary 56,9 55.3 55.7 55.2 51.8 50.6 Commuter 22.7 23.0 23.8 24.5 25.6 27.1

Subtotal 93.0 95.8 98.0 104.6 108.5 113.8

Seoul suburban 18.0 19.6 18.4 17.8 17.3 16.8

Total 50.2 49.5 47.4 46.2 44*7 45*5 -61 - Table 2.4

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KOREANNATIONAL RAILROAD - REVIEWOF OPERATIONALEFFICIENCY

RailwayFrelght Service

1980 1981 1982 1983 1984 1985

Traffic Trend Tons carried(million) 49.0 48.8 47.4 50.5 53.7 55.3 Tons/day('OO0) 133.9 133.6 129.9 138.3 146.6 151.5 Ton-km (million) 10,798 10,815 10,892 11,629 12,033 12,296 Averagekm/ton 220 222 230 230 224 222

FreightTonnage by Major Commodity(000 tons) Coal 18,595 21,343 19,574 20,120 23,212 24,418 Cement 9,837 8,399 9,519 11,078 10,851 11,171 Oil 4,125 3,231 2,877 2,837 2,879 3,200 Ore 3,348 3,943 3,875 4,088 4,270 4,275 Fertilizer 1,705 1,908 1,829 1,611 1,579 1,554 Grain 984 585 651 754 688 582 Container 407 522 640 755 824 883 Others 10,008 8,830 8,472 9,235 9,358 9,263

Total 49.009 48X761 47X437 50,478 53.661 55,346

FreightTon-km by Major Commodity(million km) Coal 3,944 3,413 4,221 4,415 4,797 5,011 Cement 2,018 1,793 2,069 2,366 2,339 2,441 Oil 882 660 632 639 644 689 Ore 798 963 960 997 1,062 1,082 Fertilizer 461 488 503 458 468 446 Grain 310 158 215 256 232 201 Container 179 229 281 328 347 365 Others 2,206 2,111 2,011 2,170 2,544 2,061

Total 10s798 10,815 10.892 11,629 12,033 i2,296

AverageDistance (ton-km) Coal 212 207 216 219 207 205 Cement 205 213 217 214 216 219 Oil 214 204 220 225 224 215 Ore 238 207 248 244 249 253 Fertilizer 270 256 275 284 296 287 Grain 315 271 330 340 337 345 Container 440 439 439 434 421 413 Others 220 278 237 235 272 222

Total 220 222 230 230 224 222 - 62 - Table 2*5

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KOREAN NATIONALRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

Staff Productivity/a

1980 1981 1982 1983 1984 1985

Numberof employees 40,629 42,019 40,928 40,468 39,255 38,854

Passenger-km/employee (O000) 533 51h 514 536 557 579

Ton-km/employee('000) 266 257 266 287 307 316

Trafficunits/employee ('000) 799 776 780 823 864 895

/a Averagefor year. - 63 - Table 2.6

KOREA

KOREAN NATIONALRAILROAD - REVIEW OF OPERATIONALEFFICIENCY

Train Operationsin 1985 (Numberof trains/day)

Numberof trains Train-km

PassengerTrains

Saemaulexpress 22 9,398.8

Air-conditionedexpress 104 32,725.2

Express 142 41,442.6

Ordinary 446 35,140.8

Seoul suburbancommuter 583 23,894.9

Mixed 2 120.0

Baggage 10 4,001.2

Subtotal 1,309 146,723.5 FreightTrains

Express 14 6,016.4

Ordinary 529 65,529.5

Mixed 22 352.8

Subtotal 565 71t898.7

Total 1,874 209,813.3 -64- Table 3.1

KOREA

KOREANNATIONAL RAILROAD - REVIEWOF OPERATIONALEFFICIENCY

Trains in Seoul-PusanCorridor - Daily Seoul Departures& Arrivals,1985

No.

PassengerTrains Saemaul 22 Mugunghwa 66 Tongil 80 Pidulgi 12

Subtotal 180

FreightTrains Bulk cargo 61 Others 6

Subtotal 67

Total 247 Table 3.2

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KOREANNATIONAL RAILROAD - REVIEWOF OPERATIONALEFFICIENCY

Kyongbu Line (Seoul-Pusan)Rail Traffic

1983 1984 1985

Freight

Ton (000s) 20,075 21,326 21,808

Ton km (million) 2,119 2,200 2,179 ExpressPassengers

Passengers(OOOs) 37,749 44,075 48,476

pkm (million) 6,914 8.50 8.751 Other Passengers

Passengers(OOOs) 29,109 22,312 18,376

pkm (million) 1,348 1,392 1,232 TotalPassengers

Passengers(0009) 66,858 66,387 68,172

pkm (million) 8,262 9,442 9,983 - 66 - Table 3,3

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KOREAN NATIONALRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

KyongbuLine (Seoul-Pusan)Passenger Traffic (1974-85) ('OOOpassengers)

Express A/C ltd. Non-A/C Ordinary Sub- Ordi- Com- Saemaeul express express express total nary Other muter Total

1974 639 - 7,177 2,323 9,500 32,838 1,059 7,612 51,648

1975 825 - 9,246 2,774 12,020 26,900 1,008 3,251 44,004

1976 1,293 - 12,538 3,046 15,584 27,386 918 3,929 49,110

1977 1,566 431 22,651 3,695 26,777 23,809 926 4,005 57,083

1978 1,901 1,638 28,498 3,768 33,904 24,106 1,011 4,473 65,395

1979 2,324 1,720 30,479 2,978 35,177 25,281 963 4,985 68,730

1980 2,420 2,248 28,967 3,245 34,460 27,072 973 4,640 69,565

1981 2,184 7,032 23,735 3,472 34,239 36,376 979 4,620 68,398

1982 1,911 8,024 24,987 236 33,247 25,080 958 4,543 65,739

1983 1,837 9,158 28,591 - 37,749 21,997 789 4,486 66,858

1984 1,876 11,261 30,641 - 43,718 17,477 1,014 4,178 66,387

1985 2,065 14,397 31,530 - 47,992 15,351 935 3,894 68,172

Source: KNR. - 67 - Table 3.4

KOREA

KOREAN NATIONALRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

KyongbuLine (Seoul-Pusan)Passenger Traffic (1974-85) (millionpassenger-km)

Express A/C ltd. Non-A/C Ordinary Sub- Ordi- Com- Saemaeul express express express total nary Other muter Total

1974 234 - 1,580 336 1,916 2,094 132 128 4,504

1975 294 - 2,029 371 2,400 2,132 254 85 5,165

1976 442 - 2,691 387 3,078 2,106 241 98 5,965

1977 522 122 4,524 355 5,001 1,600 254 111 7,488

1978 612 461 5,589 295 6,345 1,558 261 129 8,905

1979 732 466 6,003 187 6,656 1,608 269 145 9,410

1980 756 530 5,634 208 6,372 1,791 272 134 9,325

1981 677 1,543 4,439 223 6,205 1,790 275 135 9,082

1982 599 1,769 4,400 12 6,181 1,686 264 140 8,870

1983 560 2,107 4,807 - 6,914 422 217 149 8,262

1984 541 2,551 4,924 - 8,016 1,023 252 152 9,443

1985 622 3,044 5,040 - 8,706 874 251 152 9,983

Note: This line is 444.5 km long and has 79 stations;the averagedistance between two stations is 5.63 km.

Source: KNR. 68 - Table 3.5

KOREA

KOREANNATIONAL RAILROAD - REVIEWOF OPERATIONALEFFICIENCY

KyongbuLine (Seoul-Pusan)Passenger Traffic (1974-85) Averagedistance (km/pass.)

Express A/C ltd. Non-A/C Ordinary Sub- Ordi- Saemaeul express express express total nary Other Commuter Total

1974 366.20 - 220.15 144.64 201.68 63.77 124.65 16.82 87.21

1975 356.36 - 219.45 133.74 199.67 79.26 251.98 26.15 117.38

1976 341.84 - 214.63 127.05 197.51 76.90 262.53 24.94 121.46

1977 333.33 283.06 199.73 96.08 186.76 67.20 274.30 27.72 131.18

1978 321.94 281.44 196.12 78.25 187.15 64.63 258.16 28.84 136.17

1979 314.97 270.93 1996.96 62.79 189.21 63.61 279.34 29.09 136.91

1980 312.40 235.77 194.50 64.10 184.°1 66.16 279.55 28.88 134.05

1981 309.98 219.43 187.02 64.23 181.23 67.86 280.90 29.22 132.78

1982 313.45 220.46 176.09 50.85 185.91 67.22 275.57 30.82 134.93

1983 304.84 230.07 168.13 - 183.16 19.18 275.03 33.21 123.58

1984 297.91 226.53 160.70 - 183.36 58.53 248.52 36.38 142.24

1985 301.21 211.43 159.85 - 181.40 56.93 268.45 39.03 146.43

Source: KNR. -69 - Table 3.6

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KOREAN NATIONALRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

KyongbuLine (Seoul-Pusan)Freight Traffic (1974-85)

Total Total Average ton-km tons distance (million) ('000) (km/ton)

1974 1,883 15,747 119.58

1975 1,750 15,938 109.80

1976 1,714 16,689 102.70

1977 1,928 18,592 103.70

1978 1,996 19,384 102.97

1979 2,042 20,492 99.65

1980 1,984 20,177 98.33

1981 2,009 19,465 103.21

1982 1,953 18,829 103.72

1983 2,119 20,075 105.55

1984 2,200 21,326 103.16

1985 2,179 21,808 99.92

Source: KNR. Table 5.1 KOREA

KOREANNATIONAL RAILROAD - REVIEW OF OPERATIONALEFFICIEXCY

Inventory of Motive Power and Rolling Stock (DecenDer 31, 1985

Total Out of service In In Under AwaIting Age Condition fleet service % repair repair .iO yrs i1-ZU yrs ZI-JU)vrs >JU yrs Good Fair Foor (-number) -- --- (number) ------(rumber) ------(number)

Steam locomotives ------Diesel Locomotives Shunters. SerIes 2000 13 11 84.6 2 - - - 9 4 13 - - Series 2100 28 24 85.7 4 - - 28 - - 28 - -

Subtotal 41 35 85.4 6 - - 28 9 4 41 - - Main line, Series 3000 50 46 92.0 4 - - - 50 - 50 - - 3100 5 5 100.0 - - - 5 - - 5 - - 3200 43 40 93.0 3 - - 43 - - 43 - 4000 10 10 100.0 - - - - 10 - 10 - - 4100 10 7 70.0 3 - - 10 - - 10 - - 4200 22 21 95.5 1 - - 22 - - 22 - - 4300 5 4 80.0 1 - - - 5 - 5 - 5000 29 28 96.6 1 - - - 29 29 - - 6000 14 12 85.7 2 - - - 14 - 14 - - 6100 6 5 83.3 1 - - 6 - - 6 - - C 6200 17 15 88.2 2 - - 17 - - 17 - - 6300 23 22 95.7 1 - - 23 - - 23 - - 7000 10 9 90.0 1 - - 10 - - 10 - - 7100 90 78 86.7 12 - 70 20 - - 90 - - 7200 31 28 90.3 3 - 9 22 - - 31 - - 7500 65 59 90.8 6 - 7 58 - - 65 - -

Subtotal 430 389 90.5 41 - 86 236 108 - 430 - -

Total 471 424 90.0 47 - 86 264 117 4 471 - -

Electric locomotives 90 77 86.0 13 24 66 - - 90 - Diesel railcars 138 125 90.0 13 - 36 61 41 - 138 - - Electric railcars 408 376 92.0 32 - 284 124 - - 408 - - Heating cars 121 117 96.0 4 - 21 90 10 - 121 - - Passe er Cars SaMemaul 127 117 92.1 9 1 57 70 - - 127 - - Mugizngha 326 311 95.4 14 1 321 5 - - 326 - - Tong-il 701 658 93.8 39 4 317 359 25 - 676 25 - Pudilgi 6R9 661 95.9 26 2 - 207 482 - 207 482 - Sleeping cars 32 29 90.6 3 - 11 21 - - 32 - - Others 293 271 92.5 20 2 70 76 l14 33 146 114 33 Total 2,168 2.047 94.4 III lO 776 738 621 33 1.514 621 33 FvleAtx rs Care 80s cars 4,296 4,175 97.1 114 7 1,192 2,421 24 659 3,613 24 659 Gondolas 7,364 7,033 95.5 314 17 2.186 4,297 847 34 6,483 847 34 Tauk cars 2,992 2,923 97.7 65 4 836 1,594 332 230 2,430 332 230 Others 1,481 1,421 95.9 57 3 I1 874 - 591 890 - 591 Total 16,133 15.552 96.4 550 31 4.230 9.186 1,203 1.514 13.416 1.203 1,514 - 71 - Table 5.2

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KOREANNATIONAL RAILROAD - REVIEWOF OPERATIONALEFFICIENCY

Selected Operating Statiatics

1981 1982 1983 1984 19RS Index, 1985 (1981.100)

SYSTEM(at end of Year) Route Length (km) 3 121 3 121 j,117 3,117 3 114 100 Standard gauge (1.475 m) 3,074 3,074 3,070 3,070 3,067 tlO Narrow gauge (I.067 m) 47 47 47 47 47 1nO Double track 714 714 714 717 764 107 Electrtf led 429 429 428 428 432 I0

Number of Stations 586 588 576 589 594 101

Average Dtstance Between Stations (km) 5.13 5.1l 5.41 5,79 S,74 98

STAFF (at end of year) Number of Employees 406533 40,431 39,357 38 556 37,496 93 Permanent 14,526 34,319 33,586 13,586 33,01,3 V' Temporary 6,007 6,ns2 5,771 5,405 4,433 74

ROLLINGSTOCK /a Diesel l.ocomottves. Main line In flee,, number 367 372 368 377 392 107 Available, number 328 140 331 339 352 107 Available, 1 R9.4 91.2 R9.9 89.9 89.8 10n

Diesel Locomotives, Sh,intera In fleet, number 57 59 71 72 69 121 Available, number 51 53 63 65 62 122 Avallable, S 89.4 A9,9 R8.7 90.1 R9.8 IO

glectric Locomotives, Main l.ine In fleet, number 90 90 90 90 90 l10) Available, number 80 81 76 77 78 98 Available, t 88.9 90.0 84.4 RS.6 86.7 98

Oiesel Ratlcars, Powered Iltnits In fleet, numher 119 126 124 135 135 113 Avatlable, numher 98 11; III 121 119 121 Available, t 82.4 R7,3 R9,5 89.6 88.1 In7

Electric Railcars, Powered Units In fleet, number 328 340 340 352 385 117 Available, numher 297 307 309 322 359 121 Available, t 90.5 90.1 90.9 91.5 93.2 103

Passenger Cars, Including RailcarTrailers In fleet, total number 1 993 2,149 2.146 2.119 2,140 107 Air-conditioned coaches 305 391 402 402 650 213 Other coaches 1,350 1,437 1,446 1,429 1,149 8S Sleeptng cars 32 33 33 32 32 100 Restaurant cars 27 27 25 21 18 67 Baggage cars 145 140 124 129 154 106 Ratilear tratters 60 60 60 50 66 110 Other 74 61 56 56 71 96 Available, total number 1,810 1,904 1,989 1,971 2,030 112 Available, t 90.8 92.8 92.7 93.0 94.9 IOS

Freight Cars In tleet, total number (including privately owned cars) 16,583 1 33q 16 159 16 089 16 213 98 Box care 5,151 4,948 4,758 4!347 8S4 r Gondolas 6,870 6,824 6,944 6,9R8 7,386 1118 Flat cars 1,156 1,127 1,097 1,066 1,074 93 Tank cars 2,758 2,817 2,739 2,78! 2,964 In7 Others 648 623 617 608 419 65 Available, total number 15,485 15,383 15,313 15,328 !5,643 101 Available, X 93.4 94.2 94.8 95.3 96.5 103 In fleet, Drtvatelv owned /b 1,700 1,72t) 1,659 1,757 1,88i HI1

TRAFFIC Passenger Traffic Number of passengers, total (million) 441.0 443.5 469.4 489.0 494,7 112 Seoul suburban (SMESRS) 26 82.0 315.7 341.7 348 7 130 Other 173.0 161.5 153.7 147.1 146.n 84 Passenger-km (million) 21.551 21,034 21,688 21 877 22.489 104 Seoul suburban (SKESKS) 4,998 S,lq6 ,615 5,91- 5,873 IIR Other 16,553 15,838 16,073 15,961 16,h16 10O

Average journey, total (pass-km) 48.9 47.4 46.2 44.7 45.5 93 Seoul suburban (SMESRS) 18.6 18.4 17.8 17.3 16-,8 9() Other 95.R 98.1 104.6 108.5 113.8 119 - 72-

Table 5.2 Page 2

1981 1982 1983 1984 1985 Index, 1985 (1981-t1o0)

TRAFFIC (cont'd) Frigt Traffite NoE totlr ("Illton) 4R.8 47.5 50.5 53.7 55.3 113 N.'tton-km (millfoo) 10,815 10,892 11,629 12,033 12,296 114 Averatr.freigbt haul 222.0 229.0 730.3 224.1 222.4 100 Traffic Ilitlts (million) 12,366 31,Y9'f 31.317 33,910 34,78S 107 Traffti Densttv ?aqsenger-km per rotite-km ('0(l0) b,9t'5 6,740 6,958 7,019 7,220 l(S Freight net ton-km per roote-km ('0100) 3,465 3,480 3.731 3,860 3,949 114 rraffic units per rotue-km ('000) 10,371 10,229 10,689 1M.879 11,16- 10(8 O)PERATIONS Train-km ('00t\) 67,245 69,193 71,447 74,707 78,519 117 According to types of train: Passenger (Incliding rAtlears) 45,292 47,632 48,637 5s,131 53,077 117 Freight 21,953 21,561 22,839 24.576 25,442 116 According to tvpes of traction: Steam locomotive 15 - - - - I)esel locomotIve 48,3b4 50,217 53,212 56,163 57,561 119 Vl,ectrlc locom,tive 7,038 7,051 7,159 7,288 7,458 106 ihesvel ratle r 4,072 4.190 4,216 4,238 5,599 138 Electric railear 7,736 7,734 6,870 7,018 7,901 102 Engine-km. F'xcluding ShuntIng ('(10) 127,784 140,187 142,t)20 148,483 161i912 127 S 5teatmlocomotives - - - = Dieqel locomottves 51,055 61,251 64,184 67,543 68,968 135 Electric locomottves 9,339 9,279 9,688 9,969 10,073 108 Dlieqel railcars 12,326 12,903 12,972 12,325 14,842 120 Electric rallcars 55,046 56,754 55,176 58,646 68,029 124 Kulltng Stnck-km (million) 819 839 891 928 954 116 Pi7 ger cars, total 1 T;T TiW Freight cars, total 430 431 461 488 503 117 Loaded 262 263 2R1 293 297 113 Empty /c 168 168 182 195 206 123 Loaded Freight Cars Forwarded ('$00) 1,046 1,012 1,075 1,136 1,171 112 Average Freight Car Turnaround Time (days) 4.R 4.8 4.8 4.6 4.4 92 Average Freight Car Turnaround Distance (m) 411 426 431 430 424.5 10S PERFORMANCEINDICATORS Pas.senger Tratfic AvPr`aee nmtbherof passengers per passenger train 47h S42 446 436 424 89 Average number of passengers per passenger car 55.4 51.6 50.7 49.7 49.9 90 Fre'ght Traftit Avera- er of fretght cars per freight train 19,h 2(10. 20.3 19.9 19.8 101 Loaded TT TT-1 1T:T 1. -t Fmpty 7.7 7.8 8.0 8,0 8.1 Ins Averave fretght train load (net tons) 693 505 509.2 489.6 48J.3 98 Average load per loa,led freight car (net tons) 41.3 41.4 41.4 41.1 41.4 100 Net ton-km per available freight car ('000) 698 708 759.4 785.0 786.0 III Staff *fTTafic units per employee ('O00l) 799 790 846.5 879.5 927.7 116 Employees per rotite-km 13.0 13.0 12.6 12.4 12.0 92 RolltStck Xval la5t l7tr ( Z): Steam locomotives Diesel locomotives, main line 89.4 91.2 89.9 89.9 89.8 100 Electric locomotives 88.9 90.n 84.4 85.6 86.7 98 Diesel ratlcars, powered units 82.4 87,3 89.5 89.6 88.1 107 Electric railcar- powered units 90.5 90.3 90.5 91.S 93.? 103 Passenger cars 90.8 92.8 92.7 93.0 94.9 105 F'reIrht cars 93.4 94.2 94.8 95.3 96.5 103 Yearly dtstance covered per available untts ('00or km): Diesel main-line locomotives 156 180 193.9 199.2 195.m 126 Electri main-line locomotives 117 115 127.5 129.5 129.1 llr Diesel railcars 126 117 116.9 MIt.9 124.7 99 Electric railcars 185 185 178.6 182.1 189.5 102 Passenger cars 220 205 215.2 223.7 222.2 i01 Freight cars 28 28 30.2 31.8 32.2 115 Passenger-km per <,vat lable pasgenger car, ineluading railcara ('oO)) 9,773 8,724 9,)002.9 9,062.6 8,966.9 92 Net ton-km per available freight car ('000) 698 708 759.4 785.0 786.0 113

/a Number in fleet and available number are average number during year. 76 Average of numher at heginningand end of Year. 77 Including cabooses. - 73 - rable 7.1

KOREA

KOREAN NATIONALRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

OperatingStatements (Won billion)

1981 1982 1983 1984 1985

OperatingRevenues 356.9 417.3 470.9 514.0 551.2

WorkingExpenses

Labor 154.6 181.4 208.0 212.2 223.0

General 28.8 33.3 35.2 35.2 38.5

Maintenance 52.7 73.3 79.0 93.1 97.6

Fuel 76.1 85.9 88.6 92.6 92.5

Other 6.7 8.1 7.3 7,9 8.0

Total WorkingExpenses 318.9 382.0 418.1 440.9 459.6

OperatingSurplus 38.0 35.3 52.8 73.1 91.6

Depreciation 43.1 51.0 58.0 65.0 70.9

Net "e,ratingIncome (Loss) (5.1) (15.7) (5.2) 8.1 20.7

ft~~~~~~~~ - 74 - Table 7.2

KOREA

KOREANNATIONAL RAILROAD - REVIEW OF OPERATIONALEFFICIENCY

BalanceSheets (Won billion)

1984 1985

Assets Cvient Assets Cash 22.5 23.t Accountsreceivable 22.3 23.4 Inventories 36.0 41.2 Other 7.3 5.3

Subtotal 88.1 93.0

Fixed assets,net - revalued 2,490.1 2,839.2

Other 36.5 119.8

Total Assets 2,614.7 3,052.0

Liabilitiesand Equity CurrentLiabilities Accountspayable 37.8 59.3 Debt due in one year 98.3 82.6 Other 39.9 74.6

Subtotal 176.0 216.5

Long-termdebt - net 899.6 1,021.9

Other 18.2 20.5

917.8 1,042.4

Equity Capital 65.0 65.0 Contributed 186.2 253.1 Revaluation 1,448.0 1,663.5 Deficit (178.3) (188.5)

Total Equity I,520.9 1,793.1

Total Liabilitiesand Equity 2,614.7 3,052.0

Debt/equityratio 38/62 37/63 - 75 - Table 7.3

KOREA

KOREANNATIONAL RAILROAD - REVIEW OF OPERATIONALEFFICIENCY

Traffic Revenuesand Costs Year ended December31, 1985 (Won million)

Actual Revenue Costs Net

PassengerServices Saemaul 19,879 17,687 2,192 Mugunghwa 69,961 44,093 25,868 Tongil 116,084 97,352 18,732 Pidulgi 27,676 108,536 (80,860) (Of which Kyongbuline) (7,827) (20,792) (12,965) Baggage 13,407 21,216 (7,809) SMESRS 65,568 62,159 3,409

Total PassengerService 312,575 351,043 (38,468)

Goods Grain 3,698 3,871 (173) Fertilizer 8,338 10,375 (2,037) Cement 49,789 49,234 555 Coal 99,481 104,027 (4,546) Ore 20,248 19,778 470 Military 6,376 7,567 (1,191) KNR 5,341 5,452 (111) Container 6,651 5,729 922 Oil 16,840 15,962 878 Other 21,822 20,798 1,024

Total Goods 238,584 242,793 (4,209)

Total - All Services 551,159 593,836 (42,677) - 76 - 7Table7.4

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KOREAN NATION4LRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

Traffic Forecast:1987-91

1986 1987 1988 1989 1990 1991

Passengers No. of passengers (million) 520 604 633 657 679 700

Passenger-km (100 million) 243 267 285 302 318 335

Freight Net tons (million) 57 59 61 62 64 66

Ton-km (100 million) 129 133 138 142 147 152 - 77 - Table 7.5

KOREA

KOREANNATIONAL RAILROAD - REVIEW OF OPERATIONALEFFICIENCY

ProjectedOperating Statement (Won billion)

Budget 1986 1987 1988 1989 1990 1991

OperatingRevenues 599.1 652.2 707.6 747.0 787.7 829.5

WorkingExpenses

Labor 202.0 210.1 218.5 227.3 236.4 245.8

Fuel 88.5 95.8 98.8 102.8 106.0 108.6

Maintenance 120.5 128.4 137.1 143.8 150.8 157.9

General 92.2 95.0 97.8 100.8 103.8 107.0

Subtotal 503.2 529.3 552.2 574.7 597.0 619.3

OperatingSurplus 95.9 122.9 155.4 172.3 190.7 210.2

Depreciation 73.2 78.8 83.3 88.0 93.3 98.9

OperatingIncome 22*7 44.1 72.1 84.3 97.4 111.3

Nonoperating

Other revenue 20.0 19.0 18.0 16.0 !5.0 14.0

Interest (72.6) (83.0) (88.3) (93.1) (98.3) (104.1)

Net Profit (Loss) (29.9) (19.9) 1.8 7.2 14.1 21.2

Governmentsubsidy 30.0 20.0 - - - -

Net Income 0.1 0.1 1.8 7.2 14.1 21.2 - 18 - Table 7.6

KOREA

KOREAN NATIONAL RAILROAD- REVIEW OF OPERATIONALEFFICIENCY

ProjectedBalance Sheets (Won billion)

1985 1986 1987 1988 1989 1990 1991

Assets Current Assets Cash 23.1 23.1 23.1 23.1 23.1 23.1 23.1 Accounts receivable 23.4 25.4 27.6 29*9 31.6 33.3 35.1 Inventories 41.2 41.2 41.2 41.2 41.2 41*2 41.2 Other 5.4 5.4 5.4 5.4 5.4 5.4 5.4

Subtotal 93.1 95.1 97.3 99.6 101.3 103.0 104.8

Fixed Assets- As revalued 3,567o8 3,749.9 3,977.0 4,203.6 4,432.2 4,671.1 4,949.7 Accumulateddepreciation 728.6 801.8 880.6 963.9 1,051.9 1,145.2 1,244.1

Subtotal 2,839.2 2,948.1 3,096.4 3,239.7 3,380.3 3,525.9 3,705.6

Other 119.8 119.8 119.8 119*8 119.8 119.8 119.8

Total Assets 3,052.1 3,163.0 3,313.5 3,459.1 3,601.4 3,748.7 3,930.2

Liabilitiesand Equity Current Liabilities Accountspayable 59.3 65.4 68.8 71.8 74.7 77.6 80.5 Debt due in one year 82.6 63.7 67.1 75.9 81.9 90.2 99.2 Other 74.7 74.7 74.7 74.7 74.7 74.7 74.7

Subtotal 216.6 203.8 210.6 222.4 231.3 242.5 254.4

Long-termdebt 1,021.9 960.7 941.5 876.8 809.7 727.8 637.6 Other 20.5 20.5 20.5 20.5 20.5 20.5 20.5 Local borrowing - 162.8 305.6 482.3 655.6 839.5 1,058.1

Equity Capital 65.0 65.0 65.0 65.0 65.0 65.0 65.0 Revaluationsurplus 1,663.5 1,663.5 1,663.5 1,663.5 1,663.5 1,663.5 1,663.5 Contributedsurplus 253.1 275.1 295.1 315.1 335.1 355.1 375.1 Deficit (188.5) (188.4) (188.3) (186.5) (179.3) (165.2) (144.o)

Total Equity 1,793.1 1,815.2 1,835.3 1,857.1 1,884.3 1,918.4 1,959.6

Total Liabilitiesand Equity 3,052.1 3,163.0 3,313.5 3,459.1 3,601.4 3,748.7 3,930.2 - 79 - Table 7.7

KOREA

KOREAN NATIONALRAILROAD - REVIEWOF OPERATIONALEFFICIENCY

ProjectedCash Flow (Won billion)

1986 1987 1988 1989 1990 1991

Sourcesof Funds

Operatingsurplus q5.9 122.9 155.4 172.3 190.7 210.2

Nonoperatingrevenue 20.0 19.0 18.0 16.0 15.0 14.0

Operating subsidy 30.0 20.0 - - - -

Capitalsubsidy 22.0 20.0 20.0 20.0 20.0 20.0

Foreignloans 23.2 44.5 2.4 8.8 - -

Local borrowing 162.8 142.8 176.7 173.3 183.9 218.6

Decreasein noncashwork- ing capital - 4.6 9.5 7.2 9.5 10.1

Total Sources 353.9 373.8 382.0 397.6 419.1 472.9

Uses of Funds

Increasedin fixed assets 182.1 227.1 226.6 228.6 238.9 278.6

Debt service- Principal 84.4 63.7 67.1 75.9 81.9 90.2

Interest 72.6 83.0 88.3 93.1 98.3 104.1

Increasein noncashwork- ing capital 14.8 - - - -

Total Uses 353.9 373.8 382.0 397.6 419.1 472.9 - BO - Table 7.8

KOREA

KOREAN NATIONAL RAILROAD - REVIEW OF OPERATIONAL EFFICIENCY

Comparison of Cost and Revenue per Traffic Unit /a Year ended December 31, 1985 (Won)

Service Cost Revenue

Passenger Saemaul 25.78 28.98 Mugunghwa 11.91 18.90 Tongil 11.69 13.94 Pidulgi 30.67 7.82 SMESRS 10.58 11.16

Freight Grain 19.26 18.40 Fertilizer 23.26 18.70 Cement 20.17 20.40 Coal 20.76 17.85 Ore 18.28 18.71 Military 19.21 16.18 KNR 25.96 25.43 Container 15.70 18.22 Oil 23.17 24.44 Others 14.27 14.98

/a Per passenger-km or ton-km. - 81 -

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