Hamdard University – Islamabad Campus

Hamdard Institute of Management Sciences

Mid – Terminal Examination Semester Fall 2020
BBA – Descriptive Type Paper
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Leadership &
22 Dec 2020
Course Title: Teamwork Date of Exam:
Time of Exam : 10:00 a.m.
Faculty’s Name: Jawad A Ghaffar
Weightage of Exam: 30 Marks

Student’s Name: Enrollment No:

Hina Shahid
Q : Read the case study and answer the questions given at the end of the case study:

(i) Keeping in view of the economic viability of foreign investment in Railways how you are going to make this
project successful after reading the case in detail?
(ii) Explain risk factors that may hinder the expected economic return from the CPEC investment in Pakistan
Railways?
(iii) Discuss CEPC and Pakistan railways, Karachi Peshawar railway Project, its operating revenue, operating cost, Risk
analysis for project, Benefit Cost analysis?
(iv) Explain how CPEC investment in Pakistan railways can be a big boost to its revenues, profits, and to enable the
organization to overcome its current financial crises?

The End of Question Sheet

Questions#1

Pakistan Railway is experiencing significant losses over the past many years. And the current
project which is undergoing on construction in CPEC is ML-1 project which is one of the
important projects and game changer in Pakistan’s history. The ML-1 track is 1,872 kilometers
long and despite being the most revenue-generating track, currently it is deteriorated and the
locomotive running over it is obsolete. CPEC is a full package of several connectivity areas
between China and Pakistan including the railways’ connectivity. Thus, ML-1 is the major
revenue route for Pakistan Railways. Expansion and extension of ML-1 under CPEC are already
in process. The other two projects of Pakistan Railways that are under consideration, are the
construction of a dry port at Havelian; and the third project is capacity building of Pakistan
Railways. However, in this study, we only focus on the ML-1 project.as we have studied that
this project is going to est projects for Pakistan railway. It is important to highlight that the ML-
1 project required a huge investment and its economic viability (measured based on benefit-
cost ratio) is dependent on an expected future stream of cash inflows. , however, all these
future estimated cash flows are based on the “business as usual” scenario. The stream of cash
flows may change, subsequently influencing these estimates. So to keep this project going on
and to make it work properly we have to maintain future risks and operation costs,
management risks, oil and fuel cost .we have to look upon government policies so that the
project may not affected y them . We have to prepare plans for this project so that any
situation which could out of control do not effect this project. Such as change of government
may not affect the progress of the project.

Question#2

Risk Factors
Sub-sections below briefly describe the associated risks to the projects and highlight the possible
implications of it.

 Consistency in government policies.

CPEC has been on top of the developmental and investment agenda of the government
of Pakistan since 2013. However, Pakistan doesn’t have a good track record for the
continuation of its economic agenda. To ensure sustainability in projects’ future cash
flows, government policies are required to remain focused on the completion of the ML-
1 project. Delayed (delay has the potential of raising the cost of it), and/or partial
completion of the project negatively affect the project goals and subsequently disrupt
the completion of sub-projects
 Status of Pakistan economy.
It is quite evident that the ML-1 will be heavily financed by China. However, Pakistan
doesn’t have a good track record for the continuation of its economic agenda. To ensure
sustainability in projects’ future cash flows, government policies are required to remain
focused on the completion of the ML-1 project. Delayed (delay has the potential of
raising the cost of it), and/or partial completion of the project negatively affect the
project goals and subsequently disrupt the completion of sub-projects.
 Law and order situation in Pakistan.
The law and order situation in Pakistan remained at its worst between 2005 and 2013,
especially in the post-2007 period. In THE ENGINEERING ECONOMIST 167 recent times,
 the situation on the ground has steadily improved quite significantly. . In recent times,
however, the situation has significantly improved; however, to execute the CPEC
projects successfully and to obtain all its intended benefits, further improvement in law
and order situation, in ML-1 region, must be made as a matter of urgency
 Geo-Political constraints.
China is emerging as a new economic power in the world. At the same time, the world
is moving away from unipolar to the multipolar dynamics. Countries are accordingly
positioning themselves in this newly established world order, just like they did during
the cold war. The investment in ML-1 project and the subsequent future cash flows may
also be influenced if the Chinese government repositions itself in the new geopolitical
realities of the world. Given that Pakistan has close ties with China since 1960s, the
probability of this to happen is, however, low compared to other identified risks.

 . Other risk factors.

It is important to mention that some other associated risks could affect the ML-1
project. For instance, since 2018, the government of Pakistan is setting a fence along the
2,640 km long western border (Durand Line) with Afghanistan. This will further enhance
the overall law and order situation in Pakistan and hence will inflate the intended
benefits of the project.

Question #3

. Pakistan Railway is experiencing significant losses over the past many years and so it becomes
more relevant for us to use the tools like net present value (NPV) and internal rate of return
(IRR) or a benefitcost ratio (BCR) while analyzing the economic viability of ML-1 and the
proposed Khunjrab-Havelian link.
The amount needed for this project, is to be raised via a concessional loan program over two to
three years.5 We calculated the approximate value of the capital, required for this project in
PKR based on the trend of the US dollar in comparison with PKR.
The forecasted rate of the US dollar was calculated using a weighted moving average of three
years, which was used to forecast the value of the US dollar, with the highest weight being
assigned to the most recent years. The budget value (as per CPEC investment plan in Pakistan
Railways) was then determined by
Pakistan Railways, therefore the maximum market potential for ML-1 was calculated by taking
80 percent of the total passenger.
  Operating revenue
Revenues obtained through traveling passengers for ML-1 is the highest in comparison
to other sources of income including freight, passengers or miscellaneous travel
earnings. The total revenue is the sum of revenues obtained from passengers, freight
transportation and miscellaneous earnings. To calculate the revenue, obtained from
passengers, we first determined the average amount of revenue obtained from one
passenger
 Operating cost
The total cost is the sum of operating fuel costs, repair and maintenance costs,
operating staff costs, other costs, administration costs, and miscellaneous costs.
Published data of Pakistan Railways on all these costs were available for the entire
railway’s network for the year 2010–2015 period. The total cost data was then
converted into per kilometer cost for each type of cost separately by dividing the total
of particular cost component by the total length of railways track.
Once the total costs, revenues, and capital were determined, these values were then
used to calculate the measure of the economic worth of the project including the
benefit-cost ratio (BCR). The tax rate was assumed to be zero for being a public sector
project, which is exempt from taxation
 Benefit-cost analysis
It is clear that with current status, the number of passengers is going to be more or less
the same in the next 25 years. However, with the CPEC intervention, revenues are going
to increase enormously. Figure 4 presents a comparison of the revenues from passenger
transportation with and without the execution of ML-1 expansion and upgrade under
CPEC.
It is clear that the annual value addition of this project from some passengers alone
amounts to approximately PKR 23 billion. This will not only increase the passengers
related revenues.
These are the natural outcomes: costs will increase because of more skilled workers,
more operations and improved quality of services, an entirely new system of signals,
etc. Similarly, revenues from passengers and freight transportation will also increase
due to increased speed, good quality, and reliability of travel.

Question#4

 Doubling of entire track from Karachi to Peshawar

 Speed of passenger trains to be raise from 65/110km/h to 160 km/h
 Freight trains to operate at 120 km/h
 Computer based signaling and control system
 Grade separation to ensure safety of train operations

Responsibility:

 Proposing Agency: Ministry of Railways

 Implementing Agency: Pakistan Railways
 Supervising Agency: Ministry of Communications, Government of Pakistan

Pakistan Railways has faced a severe financial crisis in recent years. Pakistan has recently
become a partner with China in a mega-investment project under an agreement called the
China-Pakistan Economic Corridor (CPEC). Among other things, CPEC also includes a range of
investments in Pakistan Railways. Karachi-Peshawar Railway Line, referred to as Main Line 1, is
one of four major railway links of Pakistan Railways, crossing through Pakistan diagonally i.e.
from Karachi (a port city in the South) to Peshawar (a city in the north-west of Pakistan and
closed to the border with Afghanistan).
There are a number of small links (to and from ML-1), the combination of which makes the rail
network of Pakistan Railways. construction, maintenance and rolling stock costs of the Europe
high-speed rails in operations, potential time savings, and a minimum level of demand required.
All this justifies the consideration in high-speed railways investment.
Concluded that only time savings and ‘net willingness to pay to avoid traffic problems’ are not
sufficient to justify investment in the high-speed railway infrastructure; especially, the
investment should be justified by highlighting additional benefits, gained from the alleviation of
road and airport congestions. Pakistan Railways has a glorious past and during 1950-80 it was
the backbone of the Pakistan transportation system.
However, later on, in the early 80 s, the focus shifted towards public investment in road
transportation, predominantly led and managed by the National Logistic Cell (NLC – a freight
company owned and run by the Pakistani military). Moreover, the lack of adaptation of modern
technologies, started causing In more recent times, Pakistan Railways is facing a shortfall in
revenues due to rampant corruption, lack of government interest, inefficiencies in operational
times and a significant decrease in freight transportation. So this project may ale to new
dimensions in this project and help full for the growth of Pakistan railway.