JPRS ID: 9284 USSR REPORT TRANSPORTATION FIXED CAPITAL OF RAILROAD TRANSPORTATION BY A.V. IZOSIMOV

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• Collection: JPRS
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• Document Page Count: 261
• Document Creation Date: November 1, 2016
• Sequence Number: 4
• Content Type: REPORTS

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JPRS L/9284 .
4 September 1980 . �
~
USSR Re ort
p
TRANSPORTATION
(FOUO 3~/80)
FIXED CAPITAL OF RAILROAD TRANSPORTATION
BY
A.V. Izosimov
~
~g~~ FOREIGN BROADCAST INFORMATION SERVICE
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JPRS L/9284
4 September 1980
USSR REPORT
TRaNSPORTATION
(FOUO 3/80)
FIXED CApITAL OF RAILROAD TRANSPORTATION
Mosaaw OSNOVNYYE FOND3t ZHELE-ZNQDOROZHNOGO TRANSPORTA in Russian
17 Ju1 79 pp 1-232 �
[Hook�by A.V. Izosimov:~ "Osnovnye Fondy Zheleznodorozhnogo Trans-
porta" edited by.T.V: AyYiasheva, signed to press 17 Jul 79, -
3,50~0 copies, Izdatel'stbo "Trans~ort," 1979, pp~1-232]
CONTEN'~S
Title Page 1
A~notation 1
� In.troduct ion 2
Chapter.I. The Economic Essence of Fixeu Capital~and
Classif ication of It 7
l.l. Transportation Part of the Productive Forces of Society 7
1.2. Fixed and Workin~g Capital 9'
1.3. Description of the Fixed Capital of Railroad
Transp'ortation 13
1.4. Classif icat3on oi F3xed Capital 16
Chapter II. The Composition.and Structure of the Fixed
Capital of Ra.il~oad Transportation 20
2..1. Current Accounting of Fixed Capital 20
. 2.2. Inventory and Re-EWaluation of Fixed Gapital 25
2.3. Strt~cture of Fixed Capital " 29
2.4. Location and Characteristics of tfie Structure of the
Fixed Capital of Railroad Transportation 35
. - a = (III - USSR - 38d FOUO)
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i
i
Chapter III. Development of the Production Fixed Capital of Rail- '
road Transportation
_ 3.1. Fixed Capital in the Prewar Period and During the ,
Great Patriotic War 38
3.2. Fixed Capital in the Years of the Postwar Five-Year Plans 43
3.3. The Relationship Between Transportation and Other ~
Sectors ~f the National Economy 4~ I
_ i
Chapter IV. Reproduction of Fixed Capital and Technical Equipping
of Railroads 51
- 4.1. Growth and Renovation of Fixed Capital 51
4.2. Scientific-Technical Progress and Qualitative Changes
in the Fixed Capital of Railroad Transportation 56
4.3. The Effect of the Technical Equipment of Railroads
on Labor Productivity 68
4.~+. Reproduction of the Fixed Capital of Foreign Railroads 73
Chapter V. Eff ir_iency of Use of Fixed Capital ~g -
5.1. Monetary and Physical Indexes of the Use of Fixed Capital 79
5.2. Methodology for Monetary Evaluation of the Indicators
of Use of Roll:~ing Stock 84
5.3. Evaluation of Indicators of Car Use 92
5.4. Evaluation of Indicators of Locomotive Use 100
5.5. Improving the Use of Pex~nanent Structures 110
_ 5.6. Caanges in Output-Capital Ratio and the Efficiency
of Capital Investment 113
5.7. Ways to Improve the Use of Fixed Capital 120
5.8. The Use of Railroad Fixed Capital in the Capitalist
Countries 133
Chapter VI. Wea.r and Service Lives of Structures and Rolling Stock 138
6.1. Physical Wear and Obsolescence 138
6.2. Withdrawal of and Writing Off Fixed Capital 145
6.3. Determining the Average Service Lives of Rolling
Stock, Machines, and Equipment 146
6.4. Taking the Effect of Obsolescence on the Service
Lives of Rolling Stock, Machines, and Ec~uipmAnt
Into Account 155
_ 6.5. Service Lives of Railroad Structures 159
6.6. The Efficiency of Modernization of Fixed Capital 162
6.7. Service Lives of Fixed Capital on Foreign Railroads 164
_ Chapter VII. Depreciati~n Deductions in Railroad Transportation 168 -
, 7.1. Norms of Depreciation Deductions 168
7.2. Basic Principles and Methodoloqy of Calculating
Depreciation Deduction Norms 174
7.3. Development of Depreciation Norms in 1972 183
7�4� Planni,ng Depreciation Dedu_tions 188
7.5. Computation and Use of the Depreciation Fund 191
7.6. Depreciation in Foreign Railroads 200
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Chapter VIII.Capital Construction and Capital Repair in Railroad
- Transportation 204
8.1. Capital Investment in the Formation and Reconstruction
of Fixed Capital 204
8.2. Planning Capital Construction 208'
8.3. The Function of Repair Work and Performance Times 211
8.4. Planning Capital Itepair1--~ . ~ ' _ . 223
Conclusion 22~
Appendix. Service Lives and Norms of Depreciation Deductions
for the Fixed Capital of Railroad Transportation 230
Bibliography 242
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~ UDC 658.27:652.2
FIXED CAPITAL OF RAILROAD TRANSPORTATION
Moscow OSNOVNYYE FONDY ~HELEZNODQROZHNOGO TRANSPORTA in Russian signed
to press 17 July 1979 pp 1-232
[Book "Osnovnyye Fondy Zheleznodorozhnogo Transporta" by A. V.
Izosimov]
[Text~ Title Page:
Title: JSNOVNYYE FONDY ZHELEZNODOROZHNOGO
TRANSPORTA (Fixed Capital of Railroad Transportation)
Publisher: Transport
Place and Year of Publication: Moscow, 1979
Signed to Press Date: 17 July 1979
Nu~uber of Copies Published; 3,500
Number of Pages: 232
Annotat ion
This book re~iews the questions of the location, development, and use
of the production fixed capit~al of railroad transportation ~ its physi-
cal wear and obsolescence, and service life. The book demonstrates
the role of dapreciation deductions as a crucial source for repro-
duction and replacement of fYxed capital under conditioas of acceler-
~ated techn�ical progress. '
_ The book is intended for-scientific (academic) workers, but it may
also be used by economic planning, finance, and ~engineering-
Gechnical workers in.railroad transportation.
The book has 19 illustrations, 42 tables, and a bibliography with 131
entries.
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Introduction
The most important advantage of the socialist economy nver the capi-
talist economy is that it develops on the basis of a single state plan
that envisions planned, proportional growth of productive forces.
When planning the development of sectors of the national economy
planners begin from the general problems of siting productive forces
for the coming period taking into account the territorial relations
among economic sectors, the pr~duct ion specialization of rayons aiid
oblasts, the location of fuel-energ y and raw material bases, the
availability and degree of development of transportation, and other
- conditions that determine the eff ic iency of public production.
~ V. I. Lenin attached great importan ce to the question of rational
location of productive forces. In his works ha developed the most
important principles of siting productive forc-~ in a socialist '
economy, These principles are the f ollowing: even location of produc-
tion witfi due regard for fullest possible use of raw material, proc-
essed material, and labor resources; development of public division I
af labor in the republics and economi~ regions of the r_ountry on the
basis of equality and mutual help among all the republics and peoples
of the USSR; bringing industrial enterprises closer to sources of raur
material and fuel; comprehensive development of the economies of the
republics and economic regions witfi due regard for their speciali-
zation in those sectors of industry and agriculture for which these
. republics and rayons have especially favorable conditions; develop-
ment of the economies of the nationality-based republics and oblasts;
building up the country~s defense capability.
Durin~ the years of Soviet power these principles have been elaborated
and given concrete form in five-year national economic plans.
All sectors of the socialist economy are developing with a basic ob-
j ective r~f maximally increasing tfie efficiency of public production.
This means that the development and work of enterprises in the pro-
ducing sectors of physical production and enterprises in the sectors
that serve production and market output must be carried on with minimal
expenditures of live and embodied labor, The service sectors play an
important part in the process of public production. In 1977 they ac-
counted for 17.4 percent of all fixed capital, 20.8 percent of capital
investment, and 17.0 percent of all persons employed in the national -
economy,* Transportation occupies a special place among these sec.-
- tors, and railroad transportation is the p~;ramount form.
* Calculated fram data published in the statisti~al yearbook
"Dlarodnoye Khozyaystvo SSSR v 1977 g." [The USSR National Economy
in 1977 Moscow, Statistika., 1978, pp 40, 353 ~ 375.
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The work of transport ation and its role in the national economy de-
pend on the functions which it performs. Transport ation that moves
raw materials, fuel, processed materials, and semifinished goods around
within enterprises is called internal or industrial transportation. It
. participates directly in the enterprise production process and is very
important for its operation. Tfie operating length of railroads at
industrial enterprises and organizations as of the start of 1978 was
89,000 kilometers. In 1977 73.1 billion ton-kilometers of transpor-
tation work was done on them, moving 10.3 billion tons of various
articles [82, p 311].
Transportation also has a major role in carrying on relations between
various enterprises. Transportation ships the finished goods of
various sectors of the economy from the place of production to the
place of consu~ption and thus creates the necessary conditions for
enterprise work. Continuing the production process in the sphere of
circulation, transportation operates as a special economic sector
that serves production. In this case it is general-use transporta-
tion, an independent sector of physical production.
The degree of development of transportation and its location by par-
_ ~icular r~blasts and regions of the country predetermin~s transpor-
tation and economic ties, the regularity and time of delivery of raw
and processed materials and fuels for enterprises, and the amount of
transportation expenditures to ship the output of the national economy.
According to calculations made in the division of economics of the
Central Scientific Research Institute of the Ministry of Railroads,
t.fie total sum of expenditures in the national economy for shipping in
1977 was 86.7 billion rtibles. Railroad transportation accounted for ~
20.8 billion rubles or 23.9 percent of this amount [113, p 12].
Transportation expenditures increase the cost of physical output that
has already bn_en produced. Transportation expenditures account for
30-35 percent of tfie prime cost of iron and manganese ore, 20-25 per-
cent of the prime cost of coal and petroleum products, 18 percent for
- cement, and 15 percent for lumber shipments [100]. Railroad trans-
portation has a significant share of tfiese expenditures.
The location of enterprises of different economic sectors depends
greatly on development of transportation routes. At the same time,
the development of trnnsportation itself is closely linked to and de-
pends on the location of enterprises. This interdependence demands
_ a certain proport.ionality in the development of transportation as a
whole and of its particular forms. This development must correspond
to tfie location of industrial enterprises and agriculture, which will
_ crea~te conditions for satisfying the demands made on traxiaportation
_ to move freight and passengers. Fullest and most ~efficient use of
the material-technical base of enterprises of the national economy
is extrEmely important for x~ising the eff iciency of all public pro-
duct ion .
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The role oi~ transportation in the siting of productive forces has been
considered in detail in a number of major works which have demonstrated ~
the technique for consideration of the transportation factor in siting
production [63, 106]. These matters ~ave also been investigated in
the doctoral dissertations of A. I. Z'huravel' (1969) and B. I.
Shaf irkin (1974).
General-use transportation comprises five torms: rail, maritime, river,
motor vehicle, and air. The pipelines, which transport liquid and
gaseous product~, and high-voltage power transmission lines supple-
ment the uniform transportation system of the country. All the forms
- of transportation work together, supplementing and, when necessary,
replacing one another. They must be used in such a way that total
calculated expenditures for the transportation of freight and pas-
sengers, including both current operating costs and capital invest-
ment, are minimal.
Railroad transportation plays the leading role in the uniform trans-
_ port ation system of the USSR. It performs a significant share of
all freight and passenger conveyance. On 1 January 1976 the length
of tfi e general-purpose rail network reacfied 138,300 kilometers; the
` volume of freight shipping i.n 1975 was 3,236,5 billion ton-
kilometers and passenger conveyance was 312.5 billion passenger-
kilometers [84, pp 458-460]. Significant growth in freight and
passenger conveyance was planned for the lOth Five-Year Plan. By -
1980 railroad freight traffic was expected to increase by about 22
percent and passenger traffic by 14-15 percent.
Development and strengthening of the production fixed capital of
railroad transport ation, as envisioned in the document "Basic Direc.-
tions of Development of the USSR National Econom~ in 1976-1980" and
the decree of the CPSU Central Committee and USSR Council of Ministers
entitled "Steps to Develop Railroad Transportation in 1976-1980,"
are very important for successfully performing such an enormous ~
volume of shipping. Plans for the lOtli Five-Year Plan envision the
- construction of 3,400 ktlometers of new rail lines and laying 4,000
kilometers of second tracks and double-track inserts in the most
heavily used sections of the network.
Plans call for electrification of 4,500 kilometers, outfitting 16,800
kilometera of rail lines with automatic blocking and centralized ~
dispatching, and automating three and mechanizing 30-35 classi�ica--
t ion yarc~ s .
Considerable attention is being focused on supplying railroads with
more rolling stock and modern types of machinery and equipment that -
insure greater mechanization of loading and unloading and high quality
repair and ongoing maintenance of the fixed capital of railroad
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transportation, During the lOth Five-Year Plan railroad transporta-
tion is to receive 400,000 freight cars, 16,600 passenger cars, 2,200
elect ric locomatives, 6,400 sect ions of mainline diesel engines, and
2,500 diesel switch engincs [8~] .
In the first three years of the_lOth Five-Year Plan the production
fixed capital of railroad transportation grew 12 percent. Many new
roads, second tracks, electrified segments, and lines equipped with
automatic blocki~g and centralized dispatching units were put into
operation. Industry delivered i,350 electric locomotives, 1,800 main-
lin e diesel engines, 225,000 freight cars, and 9,000 passenger cars
to the railroads. In 197$ the railroads performed 3,429.1 billion
ton-kilometers of freight shipping and 332.1 billion passenger-
kilometers.
To insure timely and uninterr.upted satisfaction of economic needs
for shipping and better shipping work by the railroads the most im-
po~-tant thing is not building up the stock of technical equipment
but making fullest and most intensive use of available production
fixed capital, above all means of transportation. Intensification of
the u se of production fixed capital in railroad transportation leads -
to an increase in the traff ic [propusimaya] and carrying [provoznaya]
capacity of the rail lines, stations, and ~unctions. Like the intro -
duct ion of new machinery, improving the use of fixed capital reduces
the expenditures of live and embodied labor necessary to perform
shipp ing work, which is expressed in growth in labor productivity in
railroad transport ation and a drop in tihe prime cost o� sfiipping.
Tl:e large part played ~y the production fixed capital of ra~.lroad
tr-ansportation in the shippfng process and the multifaceted, profound
influence exerted by it on the working efficiency of rail enterprises
demand constant attention to the development, reproduction, and use
of this fixed capital.
It is very important to insure rational location and comprehensive
development of the fixed capital of rail transportation with due re- ~
gard f or the freight and passenger shipping work being done by the
railroads. In this case certain types of fixed capital should be de-
velop.ed so that when they are~used fu11y the traff ic and carrying
- capac3ty of the railroads will be maximum.
Comprehensive development of fixed capital is an essential condition
~or devising an optimal capital structure which achieves maximally
efficient use of fixed capital.
Timely performance af capital repair, reconstruction, and replacement
of capital on a high technical level for the purpose of� maintaining ,
an optimal structure and insuring that existing capital is in good
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condition are also important steps to improving the use of the pro-
duction fixed capital of railroad transportar ion.
Timely replacement of obsolete and wornout fixed capital with new,
improved forms is essential to raise the traffic and carrying capacity
of the railroads and reduce labor, material, and financial expenditures
for shipping.
Correct, economically substantiated determination of the service life
of fixed capit,:l is an important problem d.irectly linked to highly
productive use of the fixed capital of railroad transportation. The -
amounts of depreciation deductions depend on service lives, especially
that part of the deductions which is used to finance capital 3nvest-
ment to replace fixed capital being withdrawn with new, technically
and economically more progressive forms. Service life also influences
the expenditures necessary for capital repair and modernization of
fixed capital. Depreciation deductions in railroad transportation
came to a significant amount, and the challenge is to see that they
are used with maximum efficiency.
Tfie fixed capital of railroad transportation has a number of dis-
tinctive features when compared to the fixed capital of other economic
sectors. 7'hey arise from the shipping process itself. ~'oremost among
them are the existence of expensive, long.-lasting structures, location
of production fixed capital throughout the territory of the entire
cotmtry with due regard for the regional climatic and geological con-
ditions, closer interaction of the diff erent forms of railroad fixed
capital, performance of repair work on fixed capital in conditions
where train traffic does not stop, and constant renovation of track
structures during the process of capital repair.
These special characteristics make. it necessary (1) to develop che
fixed capital of railroad transportation in a comprehensive manner,
observing strict proportions in the capacity and technical equipment
of different subdivisions of railroads based on insuring the required
traffic and carryi.ng capacity in entire sectors; (2) to perform capital
repair of f ixed capital under conditions where railroad transporta-
~ tion continues uninterrupted functioning, on the basis of intro--
ducing new, improved machinery and observing conditions that en-
vision maximally eff icient and full use of all fixed capital. The
purpose of this book is to reveal the role and importance of the
g~oduction fixed cap ital of railroad transportation, show special
characteristics of its development under conditions of accelerated
scientific-technical progress, establish lines of action to improve
fixed capital given its highly intensive use and the steadily grow-
ing volume of shipping, and identify reserves for improving tfie use
of f ixed capital based An the introduction of new machinery and pro -
gressive technAlogy, widespread dissemination of progressive labor
methods, and employment of sophisticated methods for operations,
ongoing maintenance, and repair.
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Under current conditions where, thanks to new construction, expansion,
reconstruction, and technical re-equipping the fixed capital of rail-
road transportation is growing rapidly, improving its use is an
important lever for enlarging the traff ic and carrying capacity of
the railroads, raising the efficiency of the entire shipping process,
and meeting the shipping needs of the economy and the population as
- fully and as well as possible.
Tfie problems to be considere~ in this book are very complex and multi-
faceted, so the book does not claim to treat them exhaustively. The
author expresses his gratitude to B. N. Lakhman, chief of the division
of capital repair of the Main Economic Planning Adminis~ration of the
Ministry of Railroads, docent F. P. Mulyukin, and candidate of eco- =
nomic sciences docent K. N. Tverskiy, as well as other comrades, for
their useful remarks directed to improving the book.
Chapter 1. The Economic Essence of Fixed Capital and Classi~ication ~
of It
1. Transportation - a Part of the Productive Forces of Society
~ In any labor process, no matter what form of public production it may
� be performed under, people and means of production always participate.
~ The means of production are means of labor and ob3ects of labor. Ob~
' jects of labor also include tfiose things or groups of things which are
used by a person in the process of working with various objects of
labor to give them a definite use value. Therefore, the means of
labor are above all i.mplements of labor: power-supply and working
maohines and equipment, means of transportation, stocks, tools, and
- other implements of production. In addition, the means of labor in-
~ clude buildings and various other structures which do not participate
directly in the labor process but create the necessary conditions for
it to be done in general or to be done in an improved manner.
The cla~sification of various types of equipment, machinery, means of
transportation, stocks, and tools as means of labor or ob~ects of
labor depends on the place they occupy in the production process.
~ Thus, an electric locomotive being built at the plant is an ob~ect of
labor. But the same locomotive in use on a rail line for hauling is
_ n,o longer an obj ect, but rather a means of labor used to convey freight
az~d passengers. Thus, objects are classified as means of labor only
if they participate in the production process. Equipment which is
standing in the warehouse of the plant that manufactured it is
finished output. If this equipment is to become a means of labor, it
must ~ie shipped to the place where it will be used for its desig- _
= nated purpose and receive a productive application.
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The various forms of ineans of labor play different roles in the proc-
ess of pub? ic production. Implements of labor characterize th.e level
cf development of production much more than means of labor do; the
means of labor serve to preserve objects of labor or create the phys-
ical conditions fo~ the process of labor without participating ac-
tively in it. K. Marx, not~ng tfie important role of implements of
_ Iabor, wrote : "Within the group of ineans of labor itself , mechanical
means of labor, whi~h taken together can be called the bone and muscle
system of production, constitute the typical and distinctive features
of a definite epoch of public production much more than those means
of lahor which serve only to preserve objects of Iabor and which can
be called, taken together, the vascular system of production" [1,
' vol 23, p I91].
Objects of labor also include those mat erials on which a person works
_ while creating output. Virtually all industrial sectors except the
extract ing sectors use raw material as the obj ect of labor, which
means material in wfiicli labor has been invested at an earlier time.
In most indust rial sectors raw material constitutes the principal
part of the value of the finished output. A complete lack of raw
material is characteristic of all types of transportation, railroads
included. The bulk of the expenditures making up the cost of trans- ~
portation output is wages. The objects of labor in transportation ~
are the obj ects being shipped, but they do not belong to transpor- ~
tation and their value is not included in the value of transportation I
output.
The means of production and e~ le who i
p p possess definite production
skills and qualifications are the productive forces of society. In ~
all stages of development people are the most important productive
force. V. I. Lenin wrote: "The first productive force of the entire (
human race is the worker, the toiler" [2, vol 38, p 359] . -
_ The degree of development of productive forces determines the eco.- !
nomic status of the country. The condition of the entire nation al
economy depends on how highly develop~d and fully used these produc-
tive forces are.
Transportation is an important part of society's productive forces, '
and its means of production comprise a significant share of all the
means of production at the disposal of society. More than 9 million ;
people are employed in all forms of transportation, roughly 2.5
million in railroad transportation.
Transportation is one of the majo r sectors of the national economy..
Each year large amounts of capital investments are spent for the
development o f t ranspo rt at ion . Of 1 January 1975 the product ion
fixed capital of USSR transportation was estimated at 148 billion
rubles, 20 percent of all production fixed capital in the national
economy,
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Railroad transportation occupies an important place in the country's
transportation system. It accounts for almost 75 percent of all do-
mestic freight ~hipping in the USSR and 40 percent of passenger
traffic. Railroad transportation has approximately eight percent of
the production fixed capital of the national economy. ,
Describing the place of transportation in a national economy K. Marx
observed that "on the one hand the transportation industry is. an in-
dependent sector of production, and therefore also a special sphere
for investment of productive capital. But on the other hand, it dif-
fers because it is a continuat.ion of the production process w3thin and
for the pro~ess of circulation" [1, Vol 24, p 171J.
General-use transportation serves the entire national economy. It con-
veys the freight of enterprises in various sectors as well as pas-
sengers, changing their location. The movement of freight and
passengers from one region of the country to another is the output of
transportation. The volume depends on the amount of freight and number
of passengers conveyed and the distances that they are conveyed.
Therefore, transportation output is measured in ton-kilometers and
passenger-kilometers.
The output created by transportation is not a phys ical thing and it is
consumed simultarceously with its produc,tion. This is one of the most
_ important features of transportation. It does not follow f.rom this,
however, that transportation is not a sectox of physical production.
K. Marx worte: "In addition to extracting industry, farming, and
manufacturing industry there is a fourth sphere of physical production
which also goes through the different stages of production, artisans,
small shops, and machine-based, in its development. Tfiis is the trans-
portation industry, whether it is moving people or goods" [1, Vol 26,
pt 1, p 422].
, A second distfnctive feature of general-use transportation is that the
freight being carried, the ob,ject of labor, does not belong to the
transportation enterprise but rather is the property of enterprises
in various sectors of the ecanomy. This is reflected in the formula
= of the cycle of production capital in tzansportation, which has no
stage af conversion of transportation output into a commodity.
2. Fixed and Working Capital.
Tlze division of the means of production emp7.oyed in railroad transpor-
t~~ion into fixed and working capital is based on dif�erences in the
way tt~ey circulate. This was noted by K. Marx, who wrote; "That
wisich gives the character of fixed capital to the part of capital
. value expended for means of production lies exclus ively in the unique
fo.rm of circulation of this part o� capital. This special manner of
circulation follows from the spectal way in which the given means of
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labor transfers its value to the product, or from that special role I
which it plays during the production process as a factor in the fo r,na-
tion of value. This follows, in its turn, from the characteristic
features of the functioning of different means of labor in the process ;
of labor" [1,, Vol 24, p 179],
Therefore, the quality of the material from which means of production '
are manufactured, mobility or assignment to one place, and duration of
use in the labor nrocess are not factors that determine the division
of capital into fixed and working capital. This division depends ex-
- clusively on the way that means of production circulate, on how their
value is transferred to the output and how it is replaced when this
output is sold.
In the course of their work the employees of railroad transportation '
who are conveying freight and passengers use various means of labor
and olijects of labor which form the value of transportation output in
different ways. When freight is shipped its value grows by the addi-
tional value created by the labor of transportation woxkers and the
value of the means of production consumed. When passengers are con-
- veyed the value of the use effect or service form~d is consumed
entirely by the passengers during their movement.
Some of the means of production in transportation are means of labor
such as production and service buildings, railroad track, power supply, '
signal, and communications devices, supply structures, locomotives,
cars, and various types of machinery, equipment, and tools which do
not wear out cor~pletely in one shipping cycle, but ratfier are used
many timesover an extended period. Therefore, the value of these means
of labor is transferred to the value of the transportation output
gradually, as they wear out.
These means of labor are wearing out continually in the process of
shipping operations, and their value is constantly decreasing until
the means of labor have finaZly served out their life and their en-
tire value has been transferred to the value of transportation output.
As the value trarisferred by means of labor to transportation output
accumulates and is converted into money, new means of labor are ac.-
quired and replace old means of labor that are completely used up.
This is the cycle of ineans of labor. The period during which they
are used in the shipping process is very long in most cases, averaging
60 years in railroad transportation. Therefore, unlike the working
means of transportation that complete their cycles of use in 75-80
days and demand constant replacement, the means of labor used in the
shipping process for an extended time, gradually transferring their
vaiues to output, are called the fixed capital of transportation.
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Fixed capital includes both the means of labor used constantly in the
production process and those held in reserve, xeady to go into use at
any moment. The reserve power unit installed at a traction substation
~ and desi~ned to insure uninterrupted operation of the power supply
devices of an electrified road is included with the fixed capital of
transport ation just like the power unit operating at the particular
moment. Analogously, the stock of track measured by kilometer, -
wheeled pairs of locomotives and cars, and sets of spare parts for
rolling stock acquired.through capital investment and designated to
insure stable operation of the track superstructure and railroad
rolling stock are included in fixed capital.
Most of the means of labor classified as fixed capital have high costs
and long service lives. To si.mplify planning and record-keeping,
means of labor which have low costs or are used up in a short time are
included in a special group of low-cost, fast-depleted ob3ects even
though, formally speaking, they should be classified as fixed capital.
Therefore, they axe included in working capital, not fixed capital.
It is accepted.today that means of labor with service lives of less
than one year are not fixed capital regardless of their cost, and
neither are means of labor costing less than 50 rubles apiece regard-
less of their service life. In addition, instruments, automation
equipment, and laboratory equipment purchased by scientific research
organizations and costing less than three hundred rubles per unit will
not be f ixed capital. A complete list of the means of labor not
classified as fixed capital is given in the "Statute on Accounting
Reeords of the Fixed Capital of State, Cooperative, and Public Enter-
prises and Organizations (Except Kolkhozes)" published by the Finansy
Pub~ishing House in Moscow in 1977.
In addition to fixed capital, such means of production as fuel, lubri-
cants, various processed materials, and spa~e parts are used in the
process of shipping freight and passengers. These are classif ied as
the working stocks Lfondy] of transportation. They are expended in
full during one shipping cycle and their entire value is included in
the value of tlie transportation output created during the cycle. This
part of ineans of production must be replaced continuously for the
process of shipping to go on witfiout interruption.
Working stocks and circulating fun3s [fondy], including the finished
- output of subsidiary enterprises and monetary capital, form the working
capital [sredstva] of transpoxtation. That part of working capital
which is controlled by norms (production stocks of materials and equip~
ment, fuel, lubricants, and so on) is the norm-controlled working cap-
ital.
P~oduction fixed capital and norm-controlled working capital partici-
pating in the formation of the value of transportation output are
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called the production capital of transportation. This concept cannot
be equated with means of production, which includes means of labor
that do not have value: land, water resources, lumber and ore, and
mineral products.
Production fixed capital accounted for 98.7 percent of the total pro-
duction capital in railroad transportation in 1977, and working capital
was just 1,3 percent. The composition of the production caY~~al of
railroad transportation differs s~gnificantly from its composition in ~
other forms of rransportation and in other sectors of the economy.
P::oduction fixed capital accounted for 79.3 percent of the total volume
- of production capital in industry in 1977, for example, while working
capital was 20.7 percEnt.* '
As technical progress occurs over time and fixed capital develo~s, ~
its share in production capital shows a tendency to increase, while
the share of working capital tends to decrease. ~
The fixed capital [fondy] of a socialist economy differ fundamentally
from the fixed capital [kapital] tfiat represents the means of labor in
a capitalist economy. In our country the means of production are pub-
lic socialist property which exists in two forms: state and coopera- -
tive-kolkhoz. The fixed cap~Ltal of general-use railroad transportation
is state property, that is, it Fielongs to a11 the people. As a result,
it is not separate from the people and opposed to them, as capitalist
fixed capital is, and thus it is not used to exploit tfie working
people.
In a socialist economy fixed capital is tlie most important part of
public wealth. Growth and refinement of fixed capital provide a -
grapfiic indicator of increase in the country's productive capacity,
steady increase in its economic might, and a rise in the material and
cultural standard of living.
The situation is different in the capitalist countries where the means
of production are privately owned. Fixed capital there belongs to in-
dividual capitalists or monopolistic associations of them and is used
to exploit the workers.** Growth in capitalist fixed capital fs
* Calculated according to figures published in the statistical year-
book "Narodnoye Khozyaystvo SSSR v 1977 g." [The USSR National
Economy in 1977], Moscow, Stattstika, 1978, pp 40, 547.
In some capitalist countries the fixed capital of certain sactors of
the economy has b~een nationalized and put in the hands of the state.
This does not change its capitalist nature, however, because tfie re-
sults of the public production continue to go to private parties.
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evidence of a further increase in tha wealth of the bourgeoisie which
simultaneously impoverishes the working class. This crucial differ-
ence in socioeconomic nature between sociali~t fixed capital [fondy] and
capitalist fixed capital [kapital] reflects the enormous superiority of
t.he socialist economic system over the capitalist system.
Another important difference betwesn socialist and capitalist fixed
capital is that the former develops on a,planned basis, in conformity
- to the law of p7.anned proportional development of the national economy.
This insures more rational siting uf fixed capital, which creates
favorable conditions for full-capacity and highly productive use.
Under capitalism, by contrast, fixed capital develops in a spontaneous
manner on the basis of the law of value, the law of competition, and
- production anarchy. Therefore, chronic underloading and incomplete use
are typical of fixed capital under capitalism. The economic crises
tfiat periodically rock all sectors of the capitalist economy make the
use of fixed capital even worse. Workers who operate the macFiinery
have no interest in using it productively, because tfiis does not im-
- prove their standard of livi.ng but only increases profit fur the capi-
talists. ~
Tlius, socialist fixed capital differs significantly from fixed capital
under capitalism in terms of location, development, and use. The
fixed capital of all sectors of the USSR economy is used much more in-
tensively than fixed capital in any capitalist country.
In railroad transportation, when the track, locomotives, cars, and
various machine~ and equipment are used more intensively and fully,
the shipping process is more efficient and freight and passenger con-
veyance is cheaper. This makes it possible to use the money saved for
development of the national economy and 3mproving the material and
cultural standard of living of tfie people. The material interest of
railroad transportation workers in the results of their labor is an
important stimulus to maximum use of fixed capital and raising labor
productivity.
Socialist fi~eed capital also differs from capitalist fixed capital in
composition. The capitalist monopolies invest primarily in those
structures, machines, and equipment which will make it possible to in-
tensify exploitatidn of the workers and raise the profit norm. In
the socialist economy the machinery used not only raises labor produc-
tivity but also improves the working and domestic condttions of the
working people.
3. Description of the Fixed Capital of Railroad Transportation
The fixed capital of the Ministry of Railways includes above all the
L3xed capital of railroad transportat~on itself, the fixed capital of
the railroads that is used in conveying freigfit and passengers. In
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addition, tiie Ministry of Railroads includes enterprises and organi-
zations whose fixed capital is related to other sectors of the economy.
These enterprises and organizations facilitate successful accomplish-
ment of the shipping process by their activities. They include in-
dustrial enterprises that regair rolling stock and produce spare parts
and certain special types of machinery and equipment used primarily by
railroad transportation; construction and planning organizations that
perform repair work on railroad track and other fixed capital and work
- out plans and esti.mates for the constructior. of new and repair and re-
construction of existing installations; trade and public catering
organizations, The Ministry of Railroails also has its own housing and
municipal services system, cultitral, educational, and public health
institutions, and other enterpris2s and organizations that serve em-
ployees of railroad transportation and members of the.ir families. On
1 January 1975 the urtian subways whicfi carry passengers within the
- cities were transferred to the Ministry of Railraads.
Thus, the fixed capital of tfie railroads and other enterprises and or-
ganizations included in the Ministry of Railroads compri/~es many di�-
ferent types of capital that are classif ied with transpo.rtation,
industry, construction, and other sectors of the nation o~ rn O
~i i~ o ~ ^ r`~. c$ ~S y
y~ ves o ch er ao ~
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p a ~ Q ~ ,B � ~ � 5 ~ AG x ~ " e . ~ ~ t~ c~
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Key (continued):
(g) Millions of West German Marks; ~
(h) Billions of Lira;
( i) Millions of Canadian Dollars ;
Millions of American Dollars;
(k) Billions of Yen;
(1) Great Britain (Brittsh Railway);
(2) France (National Society of ~'rencfi Railroads) ; _
(3) West Germany (Federal Railroads);
- (4) Italy (Italian State Ra~lroads);
(5) Canada (~Canadian Pacific and Canad3an National Railways~ s
(6) United States (Class I Ra~lroads) ;
(7) Japan (.Tapanese National Rai:lroads) .
Note: The table was compiled on tfie Tiasis of f3:gures published in the
statistical year booli.s of the International Railroad Union
"Statistique international des chemins de �er - Statistique
des Reseaux Anne," Paris, 1960~ 1965~ 1570, 1975,
expansion of the trunk system, shutting down lowk.traffic lines and
stati~ns, eliminating additional tracks, and other such steps.
In the United States and Canada where the fixed capital of the railroads
has not been re-evaluated, its growth is significantly less and reflects
chiefly the technical reconstruction that is tak.ing place, whic~ in-
volves the introduction of automation equipment, improved signal and
communications, and new types of machines, other eauipmentr and rolling
stock.
If a re-evaluation of tTie fixed capital of U. S. railroads were to be
made, the figure would be much fiigher. According to an estimate by the :
Organization for the Establishment of a Rational Transportation System
in the United States, the amount of railroad fixed capital in 1970 was
60 billion dollars.
According to calculations made by the autt?or, the fixed capital of all
U. S. railroads, considering ze-evaluation~ was more than 63 bill3on
dollars in 1962 [51], and 96 billion dollars in 1974. Aceording to
calculations made by L. I. Vasilevskiy, the fixed capital of U. S.
railroads based on replacement value was 110 billion dollars in 1970,
while its balance appraisal was 38 billion dollars [104].
As tTie figures given in Table 26 sfiow~ the output -capital ratio of
railruads in most of the capitalist countries is dropping. The ratio
is incressing for the railroads of Canada~ but this is largely, be.-
= cause the fixed capital tfiere was taken witfiout re~evaiuation, that
is., its magnitude was determined under earlier conditions for railroad
_ comstruction and purchase of rolling stock. If current conditions for
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reproduct ion of railroad fixed capital in Canada are taken into ac-
count~ its ~igure for 1974 rises to roughly 19.7 billion Canadian
dollars and the outputTcapital ratio is just nine calculated ton-
kilometers per dollar. Tfiis level of output-capital ratio indicates a
very low level of use of the fixed capital of Canadian railroads.
The situation is almost the same on the U. S. railroads, whose fixed
capital considering re-evaluation was about 90 billion American dollars
in 1975, whicfi correspands to an output-capital ratio of 13 calculated
ton-kilometers p~r dollar.
Tlius, the production fixed capital of USSR railroads is used almost 4,5
times as intensively as the fixed capital of U. S. railroads and six !
times as intensively as tfiat of the Canadian railroads. As Table 27
below shows, the railroads of the most fiighly developed European cap- ~
italist countries have low indicators for use of rolling stock [44, '
pp 242-243]. Cars are used somewfiat better on the Japanese railroads. ~
Tfie productivity of a two-axle freigt~t car in Japan is almost twice ~
as higfi as the figure for tfie ra�ilroads of tfie European countries,
and approaches tfie level of car productivity on U~ S. and Canadian
_ railroads. Compared to the USSR railroads, however, the use of freight
cars in Japan and in the otfier capitalist countries is quite weak. ;
Car turnaround, one of the most important indicators of use of the car
fleet, was 22.3 days on U. S. railroads in 1975.
TTie locomotive fleet is not used as well in railroad transportation
in tl~e capitalist countries either. Thus, tfie average daily run of
diesel engines on U. S. railroads in 1975 was one-third less tfian on
USSR rail.roads.
Many of the capitalist countries have recently begun devoting more at -
tention to working out steps to improve the use of rolling stock. For
example, among the measures proposed to step up car turnaround in West 1
Germany are more extensive use of unit-train shipping and organizing
loading-unloading work on days off and at night. Tn the United States
many actions are being taken to step up car turnaround. Among them we
should note the agreement among railroad companies to consolidate tfie ~
fleet of enclosed freight cars, the use of the systemwide information
system Train TI to reduce empty car runs, and formation of multigroup `
trains tfiat pass sma11 stations without processing.
The intensity of use of railroad track structures in the economically
_ developed capitalist countries, just as in the USSR, is characterized
6y s~iipping volume per kilometer of operating lengtfi (see Table 28
below)
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`Table 27. Indicators of the Use of Railroad Ro113:ng
Stock in the Developed Capitalist Countries in 1973
j44~ pp 242-243],
- Indicators
A B C D E F
Great Britain (British N/A 14.91 20.1 1202 162 10.0
Railways)
France (National Soc3ety 820 36/'163 27~8 715 55 12,1
of 'French Railroads)
West Germany (Federal 837 35.6 21.6 573 59 5.4
Railroad)
It~1y (Italian State 667 N/A 16.6 381 43 10.1
Railroads)
Canad�a (Canadian Pacific 3~224 37.0 47.2 1,332 100 15.42 -
and Canadian National.
Railways)
United States (Class I 3,519 32.0 51.6 1,183 93 18.5
Railroads)
Japan (Japanese 626 24,64 19.5 1,170 95 4.42
National Railroads)
K~eq; (A) Gross Train Weight, tons;
(B) Section Speed, kilometers/hour;
(C) Static Car Load, tons;
(D) Productivity of Two-Ax1e.Car, ton-kilometers;
_ (E) Average Daily Car Run~ kilometers;
(F) Car Turnaround, days.
1F3gures for 1960.
2Figures for 1965.
- 3The numerator is for fast freights; the denominator is for slow fre~ghts.
4Figures for 1968.
- It can be seen from the figures in Table 28 that the ratlr�oad~ o~ tfie
capitalist countries, with tbe exception of Japan, have low�fre~ght
int ensity~ which indicates low intensity of railroad track use (com,.
pa~red to USSR railroads). The freight intensity of tfie railroads,
d~~fined by gross ton-kilometers per kilometer of total l~eng+tfi of
t'ctink lines, confirms this conclusion even more strongly. In the
i~itited States., the m~ost highly developed capitalist country, the aver-
a~~ freight intensity of railroads in 1975 was 7.1 m311ion gross ton-
kilometers per kilometer of total length of trunk lines, less than -
one.-fifth of. the ~ntensity fi~gure on USSR railroads.
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~
~
Table 28, Freight Intensity of the Railroads of tfie I
Developed Capitalist Countries, millions of calculated ;
ton -kilometers per kilometer of operating length~ ~
_ i
Countries 1950 1960 1970 1975
Great Britain (British Railways) 2~2 2.2 2~y 2.g
France (National Society of Frenc~ Railroads) 1.7 2.4 3.1 3.4 !
West Germany (Federal Railroad) 2.0 2.7 3,3 2,9
Ital Italia l
y( n State Railroads) 1.5 2.0 2.6 2,6 ~
Canada (Canadian Pacific and Canadian National 1.5 1.5 2.3 2.7 ~
Railways) j
j
United States (Class I Railroads) 2,5 2,5 3.4 3.5 '
i
Japan (Japanese National Ratlroads) 6.3 8.7 12.1 12.4 i
i
~
Chapter VI. Wear and Service Lives of Structures and Rolling Stock
1. Physical Wear and Obsolescence ~
The withdrawal of railroad transportation fixed capital from operation ;
results from various factors, one of the foremost of which is physical
or material wear.
I
- The physical wear of fixed capital is primarily linked to its use.
Locomotives and cars traveling over railroad track cause wear on the
rails, ties, and ballast layer and they themselves wear out. The con- ;
tact wire on roads with electric traction wears out owing to the action
of the trolleys (current collectors) of moving electric locomotives
and trains as they slide along the.wire. ;
The intensity of use of fixed capital determines how quickly it wears
out. The degree of impact of use intensity on physical wear depends on
the designation of the fixed capital and the functions which it performs
in the transportation process. When the volume of shipping on roads is
increased, which leads to more intensive use of their fixed capital, it ~
is the railroad track, locomotives, and cars that wear out most rapidly. ;
Long ago, K. Marx observed that "the objects subject to the greateat !
wear are the rails and rolling stock" [1, Vol 24, p 190]. '
!
There is a close relationship between locomotive and car wear and the -
condition of the track. The rubbing parts of the spring suspension and ~
axle box assembly of the rolling stock wear out more quickly when used _
in sectors where the track is in poor condition.
~
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But fixed capital does not wear out only during the process of use.
It also wears aut while being held_in~reserve or not used at all. In-
deed, thanks to timely repair and proper maintenance fixed capital in
use often has an even longer period.of usability than fixed capital
which does not participate.in..the~shipping process. As K. Marx observed,
"This preservation, arising from use in the process of labor, is a free
gift from the nature of live labor" [1, Vol 24, p 194].
Fixed capital also wears out under the impact of aatural conditions:
precipitation, wind, temperature,.air.humidity, and~the like. Their
effect is particularly great.on rolling stock, the roadbed, bridges,
tunnels, track superstructure,.signal and.communications equipment,
and other structures that are operated.in the open air. Natural con-
_ ditions cause steel to rust.and wooden structures to rot and they
weather and break down the building materials from which items of
f,Y.xed capital are constructed.
The nature of wear on fixed capital owing to the above-mentioned
factors varies. Wear caused~by natural forces is relatively even.
But when fixed:capital is used in.the shipping process wear depends
- signif icantly on how intensively it is uaed. For.example, the track
superstructure wears out more.quickly on segments with heavy train
traffic (especially for heavy~trains) and when the trains travel at
high speed. It should be observed that locomotives, cars, track and
construction machines, track superstructure, the catenary system, and -
~ certain other types of railroad transportation fixed capital wear out
more rapidly mainly because they are greatly affected by the mechanical
forces of friction, physical impact, and loading.
Intensity of use has a much less significant effect on the wear of
such fixed.capital as the roadbed, tunnels, metal, stone, and rein-
forced concrete trridges and culverts, stone and reinforced concrete
buildings, and freight and passenger platforms. The wear of the~e -
structures, buildings, and installations depends more on atmospheric
precipitation, wind, air temperature and humidity, and saturation with
various gases and vapors.
Observations of installed rails sho.w that their wear depends primarily
on shipping volume. In addition, it depends on the�quality of rail `
manufacture, the axial loads of rolling stock, the.plan and;profile of
the track, and other factors. Work [12] considers the eff`ect of these
factors on individual retirement of rails and their service lives.
. Af.ter passing a certain threshold tonnage of traf.fic the.physical
wear on rails incxeases sharpiy and the ra31s are completely changed
to avoid large-scale replacement of individual rails. For example,
under average operating conditions R65 rails have a traffic capacity
of 500 million gross ~ons. With a freight intensity level of 50
million gross ton-kilometers per kilometer a year the service life of
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this type of rail is 10 years on main lines (500/50). Where freight
intensity increases to 60 million gross ton-kilometers per kilometer
R65 rails serve only eight years on main lines (500/60).
Thus; where other conditions are equal the wear of a particular type of
rail is greater when the freight intensity of the segment where the
rails a?-e laid is greater.
Among the other factors on which phys3cal wear of fixed capital depends
we should note:
l. conditions of fixed capital maintenance - the
qualifications of employees, the quality of on-
going maintenance and care, the system of scheduled
preventive repair work and its quality;
2. conditions of use of fixed capital - length of ~
work in a day, speed employed, nature of work
(physical impacts, overvoltages, overheating,
overloading, and the like), and others;
3. design and reliability of fixed capital - type of
material from which fixed capital has been manu-
factured, care taken in building, correctness of
assembly or installation, and others.
As physical wear mounts the efficiency of productive use of f ixed
capital decreases. Ultimately, when the wea.r of objects of fixed
capital is significant and capital repair cannot restore their former
qualities, continued productive use of the objects becomes impossible
and they are withdrawn from use.
All types of fix ed caps.tal in railroad transportation are subj ect to
_ physical wear, but it takes diff erent forms. For lathe-type equip-
ment physical wear involves abrasion of rubbing parts, while for
electrical machines It is the aging of the insulation of the wires,
for overhead co~nunications lines it is the rusting of steel wires,
for wooden construction components it is rotting and mechanical
destruction, and so on.
The general indicator that characterizes the physical wear of fixed
capital is the duration of their functioning in the shipping process
or the service life. The service lif e is that crucial indicator
which reflects the longevity of ob3ects of fixed capital depending on
their physical wear, the time that they are used reliably and pro-
ductively. Outstanding ongoing maintenance and timely, high-quality
repair make it possible to increase service life and improve the use
of rolling stock, machines, equipment, structures, and the like.
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Where the speeds of travel of trains on railroads and the intensity of
use of fixed capital are increasing, it becomes exceptionally important
to extend their service lives. Increasing the longevity of the fixed
capital of railroad transportation reduces the need for capital invest-
ment to replace fixed capital being withdrawn.
Study of the patterns of physical wear of fixed capital is a highly
complex problem. The difficultq of determining the degree of increase
in wear of fixed capital during the operations process is linked to
the existence of many different factors that affect it. Moreover, the
factors that affect wear interact with one another, which makes it
even more difficult to establish a precise mathematical dependence for
this influence.
_ In addition to physical wear, railroad transportation fixed capital is
sub~.ect to what is called nonphysical wear (obsoleacence). Obso-
lescence is the economic aging of fixed capital that occurs owing to
scientific-technical progress. Its impact is~seen in the fact that
obsolete fixed capital, even though it is still physically usable,
no longer provides a high rate of growth in labor productivity and the
necessary, plan-dictated decrease in the prime cost of output and,
consequently, is retarding the development of production. Therefore,
fixed capital loses its value and becomes uneconomical as the result
of obsolescence. In most cases. it is advantageous to replace it be-
fore it is fully worn out physically.
Al1 types of railroad transportation physical capital experience obso-
lesrence. It comes especially fast for those ob~ects which make up
the active part of fixed cap~ital and are implements of labor. Fore-
most among them are the rolling stock and various machines, mechanisms,
lathes, and tools. These are the objects of fixed capital which are
most frequently judged to be obsolete and replaced by new, moxe eco-
nomical and productive models. In most instances this replacement takes
place long before full physical wear has occurred.
The obsolescence of buildings, the roadbed, artificial structures, the
track superstructure, and other permanent railroad structures_is much
' slower.
The~impact of scientific-technical progrese on the average length of
the~serv~.ce lif e of railroad transportation fixed capital manifests
itself in two directions. On the one hand, the service life increases -
because of scientific-technical progress; this occurs both through im-
pzovement in the design of fixed.capital and the use of more wear-
resistant materials and by improvement in the quality of repair work
on:repairing even machines or structures that have been sub~ect to
g~ea~t physical wear. On the other hand, seruice life decreases.owing
to:the effect of scientific-technical progress and the obsolescence~
associated with it because more economical means of labor appear.
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The action of obsolescence takes two forms. The first is where, with
the passage of time and improvement in production technology, better
labor organization, and the use of new, less expensive materials, the
cost of replacement of fixed capital in use is reduced. This means
that, at a given moment, the manufacture of a machine of a particular
design requires fewer labor, material, and monetary inputs than at the
time when the machine was first manufactured. In such a case tne cost
of the machine will decrease more when the time from its original con-
struction or the time between re-evaluation until another new evalua-
tion is made is greater. The second form of obsolescence is where,
owing to scientific-technical progress, new, m ore sophisticated and
productive machines appear and make existing ones less valuable.
"In both cases," K. Marx observes, "no matter how new and vital a
machine may be, its value is no longer determined by the work ti.me it
actually embodies; rather it is determined by the work time necessary
now to reproduce the machine itself or a better one. Therefore, it
loses its value to one degree or another" [1, Vol 23, p 415].
With the first form of obsolescence there is no need to replace oper-
ating f ixed capital ahead of schedule because it is as good as its
potential replacement and affords the same labor productivity and
shipping conditions. Therefore, there is no reason to replace oper-
ating f ixed capital with identical new fixed capital until the old
capital has attained an economically advisable service life. The
necessity of replacing operating fixed capital arises only where new,
more productive means of labor appear and the second form of obso-
lescence occurs.
The most obsolete types of fixed capital in railroad transpor~ation
today are isothermic cars with ice-salt cooling, passenger cars with
wooden bodies, and certain types of lathes and tools. The intro-
duction of electric and diesel traction made both steam locomotives
and structures designed to repair and service them such as stoking
pits, coal-supply scaffolds, and installations to wash steam boilers
obsolete.
The use of obsolete machines, equipment, and rolling stock in the
f ixed capital of railroad transportation involves great losses which
show themselves in the high prime cost of shipping. These losses may
be reduced by systematic re-evaluation of operating f ixed capital
(for the first form of obsolescence) and by setting service lives that
consider obsolescence and timely withdrawal of obsolete and uneco-
nomical types of fixed capital from operation and replacement with
new, improved models (for the second type of obsolescence).
Under capitalism the obsolescence of railroad fixed capital involves
great losses for the owners of railroad enterprises,who can no longer
get the maximum profit norm with old means of labor but will be made
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bankrupt by a lower profit norm. To avoid this the capitalists are
forced to replace physically usable but obsolete means of labor with
more economical and productive forms. Thus, while means of labor may,
on the one hand, be kept in production for a long time based on their
condition, "on the other hand, the competitive strugg?e, especially
during decisive changes in technology, forces them to replace old
_ means of labor with new ones before their natural death. Disasters
and crises are the principal things that compel premature replacement
_ of enterprise equipment on a broad social scale" [1, Vol 24, p 191].
The possibility of ~�eplacing outdated equipment with new equipment
ahead of schedule depends on the capacities and competitive capability
of railroad enter~.~rises. Small, uncompetitive enterprises that can-
not replace outdate~~ equipment with new equipment at the proper time
are ruined. In theiz� pursuit of a maximum profit norm the owners of
enterprises who have old equipment offer great resistance to the loss
~f value of thei.r iix ed capital. Th~y delay the introduction of new
technology and ~:reate obstacles to its practical application. In this
way, the railroa~~i owners, attempti.ng to preserve their fixed capital,
retard scientific-technical progress.
But the tendency to retard scientific-technical progress does not, of
course, mean ehat transportatiun machinery in the capitalist coun-
tries is not developing. Engaged in desperate competition with other
forms of transportation, railroad enterprises try to reduce shipping
costs and increase their own profit by employing new equipment and
making various kinds of technical improvements, For example, U. S.
railroads have introduced diesel traction, laid heavy rails on most
mainlines, and introduced automatic blocking, centralized dispatching,
the use of computers and calculators, and remote control of switch
engines, switches, and signals on a broad sc.ale.
To avoid losses from replacement of old equipment ahead of time, obso-
leseence is taken into account in determining service lives. The
book "Economics of Transportation," published in the United States,
observed that "the obsolescence af all types of trznsportation equip-
ment occurs rapidly; therefore, charges to the customer must contain
a certain amounti for depreciation of investment during the probable
service life of the equipment so that costs are applied to the output
of thi..s equipment during ~`s service life, not to the output of the
equ3.pment ~ahich replaces it" [127, p 715]. At the same time the dif-
fi~culty of def~ermining ~he poseible service life of equipment is
emp.hasized. "It does not follow, however, because the problem is `
d~,f�icult that it should be dodged" [127, p 715].
Zrz.a socialist economy obsolesc:ence makes it necessary to replace out-
dated equipment ahead of schedule. This gives rise to losses from
incamplet~ depreciation of obsoleCe machinery. To reduce the losses
that 4~,cur when obso~.ete and uneconomical equipment whose cost has not
yet lbeer: fu11y transf erred to output is withdrawn from production, -
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service liv~s must take obsolescence into accoun t. It has the strong-
est impact on reducing the service life of locomotives, cars,
machines, and mechanical and energy equipment and causes them to be re-
placed before they are physically worn out.
The average servi.ce lives of fixed cap ital are decreased owing to con-
tinuous scientific-technical progress, which results in improved types
and designs of rolling stock, machines, and mechanisms. Therefore,
to avoid delaying the introduction of new types of fixed capital the ~
service lives sh~uld correspond to the pace of scientific-technical
progress. Service lives thst are too long cause phy3ically wornout
and obsolete equipment to be used for an extended time.
Thus, obsolescence leads to a reduction in the service lives of fixed
capital based on physical wear. This reduction will be greater when
the pace of scientific-technical progress quickens and industry has
more realistic possibilities of quickly replacing obsolete equipment.
It would be a mistake, however, to think that we should try to mini-
- mize service lives in every case to avert obsolescence. As will be
demonstrated below, in cases where the service life of fixed capital
based on physical wear is less than the service life determiued from
conditions of obsolescence, it is necess~3ry to increase the length of
service of obj ects based on physical wear. The most economical ef-
f ect is achieved when the service lives established by physical wear
and obsolescence coincide.
An increase in service lif e based on physical wear where it is less _
than the service life based cn obsolescence is very important because
it makes it possible to save capital investment and reduce depreci-
ation deductions transferred to output. An increase in the service
life is especially efficient within the limits af the depreciation,
which is that service life, taking obsolescence into account, which
is adopted as the basis for working out norms of depreciation de-
ductions.
Analysis of the withdrawal of railroad transportation fixed capital _
shows that there is signif icant retirement of f ixed capital from use
ahead of schedule owing to great physical wear, which results in in-
complete depreciation of fixed capital and the occurrence of losses. '
In 1975 alone, depreciation deductions not transf erred to transpor- ~
tation output owing to premature withdrawal of f ixed capital and '
withdrawal of certain types of equipment that are included in com-
posite inventory objects was more than 172 million rubles. Insuring '
highly reliable work by fixed capital through the entire deprecia-
tion period will make it possible to reduce these losses, improve
qualitative indicators of their use, and decrease expenditures for
ongoing and capital repair.
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2. Withdrawal of and Writing QFf Fixed Capital
The fixed capital that is withdrawn from use owing to physical wear or
obsolescence is subject to wri*ing off. According to the "Instructions
� on Procedures for Writing OPf Unueable Fixed Capital from Enterprise
and Organization Balances," equipment, means of transportation, tools,
and inventory items that are obsolete, wornout, and unsuitable f~r
further use may be written off.
Fixed capital is written off when the crucial assemblies and parts
reach thresholds of wear where restoring them by repair is either not
technically f easible or economically unwise. Equipment and roll ing
stock are also written off in those cases where they have obsol ete, -
imperfect designs and further use of them, even with signif icant
modernization, is inefficient. Equipment and means of transportation
damaged in natural disasters and accidents are also sub3ect to writing
off if crucial assemblies and large parts of them have been com-
pletely destroyed or have punctures, cracks, breaks, and buckling that
cannot be repaired.
The withdrawal of railroad transportation f ixed capital in recent
years has been significantly linked to technical reconstruction of the
railroads and introduction of new equipment; in other words, it is ex-
plained by the action of obsolescence.
The buildings and structures of railroad transportation are written
off in connection with reconstruction and demolition related to the
canstruction o~ new facilities and also when they become dilapidated.
The suitability of various types of fixed capital for further u se and
the possibility and wisdom of reconstruction repair are determined by
permanent commissions formed at railroad transportation enterpr ises
and organizations. These commissions make on-the-spot inspections of
the ob3ects planned for writing off, determine the causes of wr iting
off and the possibility of restoration and further use of the entire
ob~ect, make an evaluation of the condition of particular parts and
assemblies of the objects being written off, and compile writing off
affidavits using form FOU No 13.
In conformity with the "Statute on Procedures for Planning, Computing,
and Using Depreciation Deductions in the National Economy" (Mo scow,
Ekonomika, 1974), losses from writing off fixed capital that has not
been fully depreciated are classified with the results of the economic
activity of enterprises and organizations, except for those cases -
where f ixed capital is liquidated according to a ratified plan in
connection with the introduction of new equipment and reconstruction
of cities and railroads. In this case the losses are applied to re-
duc.e the statutory capital of the enterprise. It is proper to make
a more careful review of the reasons for ahead-of-schedule withdrawal
of fixed capital that had not been fully depreciated. The losses
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should be related to the results of economic activity only in ~hose
cases where fixed capital is written off ahead of schedule for reasons -
that depend on the employees of the particular enterprise.
Work [4gJ reviews the question of regulating the results of pr~nature
withdrawal of f ixed capital in detail.
The withdrawal of f ixed capital in railroad transportation increases
each year, related to an increase in the intensity of its use and ,
_ greater physicat wear. Moreover, with the acceleration of scientif ic-
tecYu~ical progress the withdrawal of obsolete f ixed capital is rising.
If all railroad fixed capital withdrawn in 1960 is taken as 100 per- -
cent, withdrawal in 1965 was 146 percent, in 1970 it was 215 percent,
in 1975 - 281 percent, and in 1977 - 290 percent.
3. Determining the Average Service Lives of Rolling Stock, Machines, '
and Equipment.
Determination of the average service lives of various types of fixed
capital 9s one of the most complex problems, The reason for the com-
plexity is the fact that service lives are closely tied to wear which, _
as demonstrated above, depends on many factorso
Different methods are used to determine the service lives of fixed
capital. One of them is based on analysis of statistical data on the
" withdrawal of fixed capital from use.
"We laiow from experience," K. Marx wrote, "how long a given means of
labor, for example a certain type of machine, can exist on the aver-
age" [1, Vol 23, p 215]. Determining service lives on the basis of
statistical data makes it possible to give fullest consideration to
all factors that aff ect them. But the use of this method to estab-
Iish service life for future periods demands additional consideration
of new factors that may appear. Establishing the impact of the fac-
tors on change in average service life is made more complicated by
the fact that it is also necessary to predict their appearance it-
_ self.
~ It should be observed that it is not always possible to use the -
method of determining service lives on the basis of statistical data
because the necessary information is not available. Mareover, or- ,
ganization of sampling surveys to obtain data on withdrawal of fixed
capital from use is complicated and labor-intensiv~ work that re-
quires well laid-out records of the introduction and withdrawal of
f ixed capital.
The service lives of f ixed capital may also be determined by special .
engineering calculations that take account of the impact of the most
important, but not all, factors on wear [physical wear and
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obsolescenceJ , which also means on servic.e lif e. In most cases these
calculations are highly complex.
Cor.rect determination of the service lives of ob~ ects is closely linked
to the development of classification~ of repair jobs and determining
the i.nter-repair periods on.which the number and volwne of periodic
repair jobs and the volumes of r.epair wark done during ongoing main-
tenance of objects depend.
In practice the determination of a~erage normative .service life for
particular types:of fixed capital.is very important. The average
normative service life of an object is not the number of years during
- which it maintains .its full capacity, productivity, and efficiency.
It is natural that.at a certain moment in time after its launching in
_ ut~e, and especially in its final period.of use, an object cannot keep
~all its technical and operating qualities. The term average normative
:service life should mean the average number ,of years that pass until
further use of .the particular~ob3ect of fixed capital is not tech-
:nically feasible or 3s economically unwise owing to substantial
physical wear or obsolescence.
"The most important characteristics that define this moment are the
.following: (1) when br~sic parts, details, and ass.emblies of the ob-
_ ~ ects reach threshold norms : of :physical wear at which the . ob~ ects
. should be removed from operation because it is plainly impossible to
use them for their designated purpose or to insure the necessary
safety of operations (for . example, for intemal combustion engines
this norm is the allowable wear on cylinder walls); (2) significant
drop in the productivity, speed, precision, pressure, stability,
strength, or other characteristics of fixed capital. given in their
factory passports where capital repair and even.modernization cannot
restore these characteristics. to.the original level; (3) significant
increase in expenditures . for . operation, repair, and ong oing main-
. tenance (loss of ecc~nomic feasibility) .
All of these characteristics ~must be .established in the , concrete oper-
:ating conditions of the particular type of fixed capital. ~
'The average service life.of..ob3ects includes all the.noxm-controlled
-`interruptions in their operation, the time aeeded for r~pair work,
. cleaning, inspections, and the. like. Past ~experience :with use of
:.the ob~ects taking: into account.;intens3ty_ of .use and, progressive
~~methods flf repair~.and. ongoing~~maintenance�must be considered when
determining the -average service life.
~lgecause the ob3~ects of different types of-~ailroad Lransportation
- .``~.~xed capital diff.er in designation: and the- complexity of the func-
.:tions they perform, their, no~mative~ serviee lives are determined by
.:different procedur.es. ' Bnt all~~ of these procedures must be based on -
~:wear.
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The average service lif e of railroad rolling stock based on physical
wear may be determined from the service lives of the most important,
expensive, and long-lasting parts. For example, for many years the
service life of raiiroad cars was determined by the longevity of the
frame, and the life of locomotives was based on the service life of
the frame or body. The development of repair technology, however, made
it possible to repair and restore both sma11 parts and assemblies of -
the objects, and also their principal parts, whose service lives had
_ been used to determine the lives of entire objects. For this reason
it was proposed that the average service lif e of an object based on
physical wear be determined not by the service life uf some one prin-
cipal part, but rather by the service life, weighted by value, of
_ particular parts and assemblies,
The service lives of part~ and assemblies necessary for this may be
determined on the basis of replaceability (for parts and assemblies
- that are withdrawn because of inetal cracking and fatigue, wood rot-
ting and the like) and by special calculations (for parts that work
by abrasion, mechanical wear and the like). `
Table 29 below g ives an example of determining the average weighted
service life of an ER2 electric car based on cost of constituent
elements [54].
Table 29. Determination of the Service Life of an
- ER2 Electric Car
% of Cost of Service Number of
Elements in Life, Percent-Years
Design Elements of Car Total Cost of Car Years (Col. 2 x Col. 3)
Body 8.79 40 351.60
Wires and Cost of Installing Them 2.02 15 30.30
in Body
Frames of Trucks 6.89 35 241.15
_ Brake Leverage and Spring Suspen~ion 7.46 30 223.80
Wheel Pairs with Axle Boxes 16.71 15 250.65
Traction Electric Motors 20.13 35 704.55
Electrical Equipment, Fittings, and 12.74 20 254.80
Other Devices
Braking Equipment (Engineer's Brake 0.80 25 20.00
Valve, Air Distributors, and the
Like)
Other Elements 24.46 20 489.20
Totals 100.0 25.7 2,566.05
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Application of the procedure for determining the service life of an
object based on the service lives of its particular parts and ~.:~~b,lies
is made more complicated by the fact that any part or assemf~.~.~ coday ~ar..
be repaired and thus the use of the object can be extendad for prac-
tically any necessary time. Therefore, the eff ect of physical wear
on withdrawal of fixed capital from operation is significantly miti-
gated and is esseati.ally determined not by the possibility, but rather
by the econo~nic advisability of repairing ob~ects and the scope of the
losses associated with tlle use of obsolete objects.
- L3,ke many other s.ectors of the nafi~.onal economy, railroad transporta-
tion uses the method of determining what are called economically
advisable service liv~es. It was f irst propflsed for steam engines in
_ 1925 by engineer V. 0. Vasil'yev and was derived from the ratio of
depreciation deduc.tions to replacement and expenditures Lor current,
medium, and capital repair financed from means of operation. The mini-
mum of these expenditures, determined by the graph method, corresponded
to the most advantageous service life of steam locom~tives at that
time, which was 21 years [31, p 24], The graph method of determining
.eeonomically advisable service lives for locomotives was later elabor-
ated in the works of oth~r Soviet scientis~ts, principally K, I.
Dombrovskiy and N. G. Kab.enin [42, 57]. This method is also used in
studi~s by American scientists [121],
The determinatiion of economically advisable serviee lives of loco-
motives by the graph method begins with the assumption.that as the
locomot ive grows older expend.itures for repair and ongoing main-
~tenance increase. Growth in~the eost of repair and ongoing mainten- _
2nce, which eliminate accumulating wear, will differ for electric and
diesel locomotives even where they are used in the same .way because
it depends on locomotive design. Yt �~aill be greater when a design has
more moving parts and assemblies that are subject to mechanical wear
and when locomotives are used more intensively,
According to studies by M. N. Belen'kiy, the.increase in the cost of -
repair and inspection as the locomotives grow old is less significant
for electric locomotives, owing to their simpler design, than for
diesels [23, p 110]. The me~hod under consideration begins from the
general proposition that the shorter the 8ervice life.of the locomo-
.tive is, the smaller annual expenditures for r.spa,i~ and ongoing
- ~~maintenance will be. Depreciation deductions for full replacement
...will be greater with a short s.ervice life, however, because replace-
::ment of locomotives will have~to be:done more often in this case.
`Therefore, the locomotive service life taken as economically advis-
~:able is that period for.which annual depreciation.deductions for
�ull replacement and expenditures for repair and ongoing main.tenance
~are minimal.
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In 1953 N. G. Kabenin used the method of analytical calculation of the
service lif e of steam locomotives by minimum expenditures for repair
and depreciation. This method was based on the equation below for
average annual expenditures CaP according to depreciation and repair
of steam engines
Cav " Ra aa -f- as (7'-I-T') ~ ~21~ -
T `lT
where K.~ is the cost of a steam engine in rubles, T is the service life
of the engine in years, a~ is the permanent part of annual rspair ex-
penditures in ri~bles, and ab is the increasing part of repair expen-
ditures per year in rubles. _
- The quantity aB ~T2T2, shows change in average annual repair expendi-
tures for the entire service lif e of the steam Iocomotive depending on
the annually growing share aB.
Expression (21) can be writt~n differently:
~e v= TII aa -l- 2-I- 2T (22)
By equating the first derivative of expression (22) to zero we f ind
service life T for which average annual expenditures for repair and de-
pxeciation will be minimal,
dd
�Q - aT ~ TII un 2'f- Z T l= 0. (23) r
/
Frvm this it follows that /~2K
T = I / � (24)
Y a,
The economically advisable service life of a steam locomotive calcu-
lated by N. G. Kabenin using formula (24) was 33 years. Considering
that the scheduled off icial inspection period for the steam boiler is
40 years, he considered it possible to increase the service life of
the entire locomotive to 4Q years.
Somewhat later the question of determining economically advisable ser-
vice lives was thoroughly investigated by Yu. N. Vinogradov, who
analyzed repair expenditures for electric engines on the railroads of
the Urals and Siberia. Using the same methodalogy of calculations and
higher norms for distance ~raveled between repairs he came to the
conclusion that the optimal service lives of electric engines should
be 25-30 years [33].
The graph and analytic methods of establishing economically advisable
service live~ of f i~ed capi.tal have become widespread for deter-
mining the service lives of various types of machinery and equipment
~661. -
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It should be remarked that both of these methods have shortcomings.
One of them is that the expenditures that depend on service life are
not continuously changing. At the moment of capital repair there is
a break in functions and therefore the dif~'erentiation of equations
obtained is not entirely correct. Another shortcoming is the assump-
tion of linear growth in expenditures for repair and ongoing main-
tenance of the ob~ects under consideration throughout their entire
service lives. Moreover, a precise determination of the magnitude of
increase in these expenditures with the passage of time is extraordi-
narily complicated.
To eliminate these shortcomings R. N. Kolegayev proposed that the
service lives of machines be determined by these methods by multiples
of the number of repair cycles. Moreover he substantiated methodo-
logically the linear growth of changing expenditures within the
limits of each repair cycle and the increase in the level of these
expenditures as the number of repair cycles increases [65].
It should be observed that the methods of determining economically
advisable service lives do not fully account for the influence of
scientif ic-technical progress and the obsolescence associated with it.
Many scientists who have studied questions of service lives have
pointed out this fact. For example, in 1955 A. S. Konson, deter-
mining the economically advisable service life of the DIP-200 ma-
chine tool by the graph method, took the decrease in its value owing
to technical progress into account. "A significant shortcoming of
this method," A. S. Konson emphasized, "is that it does not reflect
the impact of the introduction of new, improved designs of machines
with better operating parameters on the value of machines launched
in operation at earlier times" [66, p 87].
In 1963 A. Ye. Gibshman proposed a method of determining the eco-
nomically advisable service life of locomotives taking into account
change in expenditures for repair and ful.l replacement in time [38],
" that is, considering the postponement of capital investment, using
a coeff icient of postponement Ro = 1/(1+Eg)t (where EH is the norma- _
tive coefficient of economic efficiency and t is the service life
of locomotives).
In addition to the effect of postponing expenditures, A. Ye. Gibshman
considered obsolescence in determining the optimal service lives of
locomotives. To this he determined the decrease in operating expen-
ditures and capital costs with the introduction of improved loco-
motives and on the basis of analysis and logical conclusions adopted
a period of 10-12 years for the arpearance of new diesel locomotive
designs and 10 years for new des~~ns of electric engines.
In his studies of the effect of postponing capital investment on full
restoration of locomotives and the �actor of the uppearance of new
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designs, A. Ye. Gibshman reached the conclusion that the optimal ser-
vice life for electric locomotives should be 24 years, while for -
diesels it should be 18 years [38J.
In 1971 So Ye. Kantorer proposed determining the optimal service lives
of construction machines by the minimum sum of expenditures for repair
and depreciation deductions, expanding the group of expenditures that
change depending on the age of the machines [58]. In this group he
included expenditures for not only ongoing mainter~ance, repair, and
depreciation of machinery but also fuel, lubricants, and materials
that depend on the service life. He also took the drop in machine
productivity with increasing age into account.
Emphasizing that when ob;:olescence is taken into account the service
lives of construction mac2~ines decrease in connection with the appear-
ance of more productive and economical models, S. Ye. Kantorer pro-
pased that the optimal service lives of machines be determined by
stages. In the first stage the economically advisable service lives
of machines are established according to minimum operating expendi-
tures, while in the second they are determined according to condi-
tions of obsolescence. In the third stage steps are taken to converge
_ service lives based on physical wear and obsolescence. As a result
of following the first three stages the economically advisable ser-
vice lives of machines are established with due regard for the combined
influence of physical wear and obsolescence. In the fourth and fifth
stages a determination is made of wha.t service lives will yield a
minimum of essential fixed capital and working capital and a minimum
of capital investment in the production of machinery and spare parts
for this capital. Finally, in the sixth stage the economical~.y ad-
visable service lives obtained are compared and the most optimal is
selected.
- In addition to the methods considered above for determining economi-
cally advisable service lives of ineans of transportation, machinery,
and equipment, it is also proposed that these periods be determined
by maximum profit obtained during the use of these types of f ixed
capital [64].
Similar methods of determining optimal service lives are used in cer-
tain foreign railroads. In 1970 W. Doering, working for the Ministry
of Transportation of the German Democratic Republic, developed a
methodology for determining the optimal service lives of railroad
freight cars [125J. This methodology was based on the proposition
tha.t during its working life, from the moment it is put into use until
it is written off, a car will require certain expenditures and bri.ng
in income; the most advantageous service life for the car corresponds
to maximum profit. To simplify the calculations, however, W. Doering
then establishes just one relationship, between the service life of
cars and the magnitude of expenditures. The time during which the
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sum of expenditures for servicing, ongoing maintenance, and repair of
cars and for depreciation deductions and eaergy costs for train trac-
tion are minimal is taken as the optimal service life of a car.
Ot~salescence ia considered by including expenditures for the cars
being replaced in the calculation. This accounts for the effect of de-
, s~ign, technological, organizational, aad othex improvements associated
with new cars. After determining the minimal expenditures and the
economically advisable service life of a car correspondiag to them,
W. Doering finds the annual cost savings~from the introduction of
promising types of cars. Taking the decrease in tatal expenditures
owing to the introduction of new, improved cars into account he also
determines the optima.l service life of a car that co.rrespands to the
new expenditures. W. Doering does not gi~e the o.ptimai service lives
of cars which he obta~.iied, but he po3nts out that these periods depend
largely on the degree of increase in car wear as they gr.ow old.
In 1971 R. Guetter of East Germany used an analytic-graph method to
determine the optimal service life of locomotives by minimum expendi-
tures for~depreciation., repair, and operation. He arrived at an
optimal se.rvice life for locomotives of about 17 years. '
In the Federal Repnblic of Germany the determination of op.timal service
lives of railroad cars begins from the fact that the steadily growing
pace of scientif ic-technical progress causes cars to age rapidly..
"Therefore," observed K. Raab, "long service lives far cars are no
longer necessary if the railroads want to compete successfully with
other forms of ~ransportation. Because short service lives for cars
increase the requirement for capital investment to replace~t.hem, how-
ever, it is esaential to cut expenditures for repair and ongoing
maintenance by strengthening the design of the car so that the period
between capital repairs for it can be doubled, from four to eight years.
On thie bxsis, the service li~fe of cars may be taken as 16 years fdr
one overhaul, 24 years for two, and so ort. In other wards, it is
a multiple of the repair cycles" []:28, p 777].
Studies made in the FRG in 1979 showed that the o.ptimal service lives
correspond to minimal expenditures and are as follows: 40 y.ears for
flatcars, 32 years for passenger cars and enclosed.freight cars, and -
2.5 years for gondolas [128, p 776]. These same service lines are
gi.ven in later works. For example, in a report at the International
Ra31r�oad Congress in Bologna in September and Octob~er of 1975 de-
voted to reviewing change in the structure of the fleet of fr.eight
c~rs of West German railroads, W. Stelter gave the average ser~ice
1i;~e of freight cars at 25-30 years.
Th~ brief survey of inethods of determining o,pt3mal or economically
ac'.visable service lives shows that their signif icant shor.Ccoming is
a~failure to take full account of scientif3.c-technical progr.ess and
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the obsolescence associated with it. It is noteworthy here that certain
investigators distinguish the concepts of "economically advisable service
life" and "optimal service life."
In the opinion of these investigators the difference between these two
concepts is that the optimal service life does not have to consider the
concrete conditions that determine the length of service of objects of
fixed capital, while the economically advisable service life must begin
from the real possibilities of replacement of the objects for which it
is being established. This distinction between the concepts is to a
signif icant degree arbitrary because the economically advisable service
life established for concrete conditions always takes into account ac-
tual prices for fuel and materials, the level of wages, prices for new
machinery, its productivit~ and economy, repair costs, and other factors
operative in the given time frame. Therefore, for the particular
period of time the economica~ly advisable service life is also the
optimal service life.
As for the possibilities of replacement of machinery in the given
period of time, they can limit the economically advisable or optimal
service life of fixed capital depending on the purposes for which the
service life was established. Thus, the depreciation period of f ixed -
capital applied to calculate norms of depreciation deductions must
take into account real possibilities of replacement of old machinery.
A service life intended for future planning of new enterprises to pro-
duce new machinery should begin from optimal, economically advisable
service lives for the given time frame with a certain correction factor
for possible reduction in the future.
Extremely long service lives were used for rolling stock in USSR rail-
road transportation for a long time; during these periods of service
locomotives and cars would go through numerous overhauls. For ex-
ample, in an average ~ervice life of 35 years the TE3 diesel engine
would travel almost 6.5 million kilometers and go through nine capital
repairs with a total cost of 450,000 rubles when the price of the
engine (two sections) was 228,900 rubles; the VL8 electric locomotive
with a service lif e of 40 years traveled 8 million kilometers and
went through 12 capital repairs with a total cost of 620,000 rubles
where the price of the engine was 159,600 rubles.
Large amounts were spent for factory repair of freight and passenger
cars, track machines, and the equipment of locomotive and car depots.
For example, while a four-axle gondola car cost 5,700 rubles, total
expenditures for factory repair in its service life of 40 years were
twice this price. Repair expend itures were very high for specialized
railway cars, in particular refrigerator cars.
It is ineff icient to spend large amounts for capital repair of rolling
stock because over a long service life locomotives and cars not only
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become greatly worn physically, they also become obsolete. Under such
conditions it is much more advantageous to buy new, improved locomotives
or cars than to repair old ones that have been in use for a long time.
Long service lives for rolling stock presuppose a large number of
capital repairs at high cost and make it necessaxy to organize plants
to produce spare parts and repair rolling stock and to develop repair
shops at the depots, in addition to having locomotive and car bu ilding
plants. The inadequacy of repair facilities for railroad rolling stock
is being f elt today and steps are being taken to expand it. This makes
it particularly important to determine the service lives of locomotives
and cars correctly. The service lives of rolling stock, which are still
very long, must be shortened and the number of expensive aad inefficient
repair ~obs on old equipment has to be reduced, replacing the equipment
more rapidly. -
In an article [119] G. Yakovlev proposed establishing a norm of one "
capital repair for most types of mach3nes, while increasing the length
of w~ork untj.l capital repair 1.5-2 times by strengthening weak parts
and assemblies and increasing the wear resistance of the fastest-
wearing parts and assemblies. Because prices for railroad rolling
stock are significantly higher than the expend~tures for one capital
r.epair, the proposal to establish the sexvice life of locomotives and
cars figuring on just one capital repair is unacceptable. At the same
time, however, 9-12 capital repairs during the serviCe life is ex-
cessive and during the revision of depreciation norms in 1972 the num-
ber was reduced.
Thus, the optimal service lives of rolling stock, equipment, and
machines used in railroad transportation should be determined with due
regard for physical wear and obsolescence, the comparative eff iciency
of expenditures for capital repair and modernization, prospective -
balances of rolling stock and equipment, and the real possibility of
r~placing the equipment being withdrawn. _
4. Taking the Effect of pbsolescence on the Service Lives of Rolling
Stock, Machinea, and Equipment into Account
Establishing progressive average service lives makes it possible to re-
p].ace obsolete, wornout equipment with new, improved models at the -
proper time and also to avoid expensive and inefficient capital repair.
The extent of the influence of obsolescence on service lif e depends
on how economical the equipment which will be substituted for operating
- eq.uipment is. If the machine presently in use and the new macf~ine de-
sign differ little in technical and economic indicatars, obsolescence
w311 be small and the service life of the machine in use will not
c.hange significantly because of it. But if the new machine is markedly
mo,re economical, it causes the machine in use to be obsolete and
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requires its ragid withdrawal from production. Thus, the greater the
obsolescence of a machine is, the more quickly it should be taken out of
use and the smaller the losses associated with its use in practical
operations.
Let us consider in greater detail how the influence of obsolescence on
reducing the service life of machines, rolling stock, and various types
of equipment in use in railroad transportation can be evaluated quan-
titatively.
We will adopt the following designations: T~ is the service life of the
machine being used in years; TM is the decrease in the service life of
the machine in use owing to obsolescence, in years; K1 and K2 are the
prices of the machine in use and the new machine, respectively, in cur-
rent conditions, in rubles; 31 and ~2 are annual current costs using
the present and new machines respectively, in rubles; HB is the norm of
depreciation deductions to replace the machine in use, as a percentage;
E~ is the normative coefficient of the economic efficiency of capital
investment, which according to the standard methodology for determining
the economic efficiency of capital investment is taken as 0.12.
We will assume that a new, more economical machine ha.s been built which
lowers the value of the existing machine, reducing its service life.
The savings of operating capital received from use of the new machine
is an important condition that determines whether to withdraw a machine
from operatien and, therefore, also its service life. This savings
~ must be adequate, first of all, to repay the possible increase in
capital investment for the new machine compared to the one in use, that
is K1 - K2. But if the savings from introduction of the new machine is
sufficiently large, this machine can be used even earlier, without wa~t-
- ing for the time when the machine in use has fully served its service
life, that is, to repay a certain additionai. part of the still-
undepreciated cost of the machine i.n use. In this case Che total sum
' that should be repaid by the savings from use of the new machine will ,
be C O,O1K H T. (25)
a =Ki-K~-I- ~ a M
Let us determine the reduction owing to obsolescence in the service life
of a machine in use, figuring that within the normative repayment time
- the savings from use of the new machine will repay the increase in ex- _
penditures for purchase of the new machine indicated in formula [25]
and part of the unde~preciated cost of the machine in use related to
the reduction in its service life by TM, in other words _
K,-Ki -F O,O1K1 HHTM _ 1 ~26~ -
From this we obtain 31-3' E� ~
T_ 31- 3~- Eg (Ks- Kl) (2?) -
~,OlEF1 Kl HB ~
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- Thus, the reduction in the service life of a machine in use owing to
the appearance of an improved machine depends on the amount of savings
which the new machine can provide and on the cost of this machine.
Formula (27) considers the i.mpact of both the first and s.econd forms
of obsolescence on reducing the service life of fixed capital. The
impact of the first form of obsolescence is taken into account in the
form of a decrease in the cost of building the obsolete machine that
is being used; this cost is determined for the same conditions of pro-
duction organization as applied to the newly built machine. In com-
par~ison with the original cost of the machine being used its new cost
may differ owing to improvements in production technology and labor
organization, a rise in lab ar product ivity, the use of new materials,
chamges in prices for fuel, electricity, and materials, and changes
in the level of wage rates, overhead expenditures, an3 the like.
It must be observed that the decrease in the replacement cost of ineans
of transportation, machinEry, and equipment in use owing to the f irst
form of obsolescence will be less than the decrea.se which formula (1)
reccnrrmends taking into account when re-evaiuating obsolete f ixed
capital according to the methodology of the USSR Central Statistical
Administration; this decrease takes into account the reduction in the
_ output or productivity of these machines compared to current ones.*
Obsolescence of the second form is considered an expression (27) in
the form of the annual savings 31- 3 2 which is lost each year and con-
tinues to accumulate as long as the obsolete equipment is used.
The service life of a machine taking into account both,forms of obso-
lescence TH is determined by the formula
- T -T -T T - 31-3,-EH (K,-Ki) , ~
a- a M- a O,OIEg K1 Ne
The relationship between the service life of .diesel locomotives and
the economy and price of new locomotives is shown in Figure 14 below.
- The methodology presented above was used to .determine the service
13ves of railroad transportation rolling atock, machinery, and equip-
mEmt taking obsolescence into account. It should be observed that in
t~hose cases where new equipment does not provide an adequat~ impact
*"Tnstruc.tions on Re-Evaluation and Determination of Wear of the
F~aced Capital of Economically Accountable State, CoopQra~~ive (Including
KoS`khozes), and Public Enterprises and Organizations Based on Conditions
�as.of 1 January 1972,'" Moscow, Statistika, 1970., pp 29-30
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Figure 14. Change in the Average Service Life of
Diesel Locomotives Taking Obsolescence into Account
3e,~
. ,y 4~4
3D,7
rp
17,0 -
25 ?J,3
r re
?0 f9,6 ~ ~ ~
~ '15.9~?lid ~B'~ '
15 ? .
~ ~~�n9 ~14,4 !1~ ~
~
f0 ~ 11,4 8,~
~ 3 70 ~QS~ . e
1
~ 110 ?60 1%d 1B0 199 3JG JJO 310 J
~6 8 *1 14 i7 ZO 2J 16 24(5~.m.s~c.,~6.
Key: (1) Depending on Economy 3;
(2) Depending on the Price L( of the New Locomotive;
(3) Years;
_ (4) ~j, in thousands of rubles;
(S) ~ , in thousands of rubles.
compared to existing equipment there may be no reduction in the service
life of the existing equipment owing to obsolescence. In certain cases
_ TM may in fact be a negative quantity, which indicates the advisa-
bility of increasing, not reducing the.service life of the existing
equipment. For example, when new car retarders were compared with
existing ones it was found that the new ones are less eff icient and
the quantity TM came out negative in the calculations [93].
Calculations made at the Central Scientif ic Research Institute of the
Ministry of Railroads using this methodology demonstrated that newly
built locomotives of improved designs make the locomotives in use on
railroads today less valuable, reducing their service lives. For ex-
ample, AC electric engines with commutatorless traction motors and
power output of 1,200-1,500 kilowatts per axle limit the service life
of VLi30 electric locomotives to 16 years because of obsolescence. The
use of diesel engines with more economical diesels, improved trans-
mission, and more reliable parts and assemblies devalues the TE3
diesel engines now in use, reducing their service life to 15 years
owing to obsolescence. These service lives have not been adopted at
the present time, however, because other factors, above all the
modernization of existing locomotives that is underway, make it possible ~
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to increase service lives and adopt the following figures for current
cunditions: 30 years for electr ic locomotives and 25 for diesels.
Table 30 below compares the serv ice lives~of railroad rolling stock
and track machines in effect unt il 1 January 1975 and.the new average
_ service lives that were ratified for that date.
Table 30. Average Service Lives of Railroad Rolling
Stock and Track Machines Adopted for Depreciation
Norms.
Average Service
Life, years
1963 1975 Decrease in Ser-
Types of Rolling Stock Norms Norms vice Lif e, years
Mainline Diesel Locomotives 35 25 10
Di;esel Switch Engines:
With Electri~ Drive 35 30 5
With High-Speed Diesels 35 25 10
Diesel Trains and Cars 30 25 5
Electric Locomotives 40 30 10
~ Electric Trains 50 35 15
All-Metal Passenger Cars, excep:t 54 40 14
Dining Cars
A7:1-Meta1 Dining Car.s ' S4 30 24
Encl:osed Freight Cars 40 40 -
4-, 6-, and 8-Axle Gondola Cars 40 25 15
Oil Tanker Cars 40 3S 5
Acid Tanker Cars 40 10 30
Dosing Hoppers, Ballast Cars 40 30 10 -
Refrigerator Trains, Sections, and 32 28 4~
Cars. with Mechanical. Cooling
Isothermic Cars with Ice-Salt Coo ling 32 20 12
Tie~Installing and Packing Machines 18� 15 3
Track-I:aying Machines and Rail-Layers 24 20~ 4
Rotary Snow P~.ows 40 32 8
Snow and Earth ~~:ari.ng Machines 30 20� 10
The decrease in the service lif e of locomotives.and cars, maehinery,
and.. equipment aims at reglacing the active part of fixed capital quickly
and.supplying railroad transportation with better, more economical
models of new equipment tha.t create the essential conditions for re-
d'uc~3:iig the prime cost of shipping and raising labor productivity.
5:. Service Lives~ of Railroad Structures
Ttte~ major railroad structures such. as the roadbed, bridges, tun.nels,
th~.track superstructure, and the catenary sys.tem, which make up a
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lar~e part of the valuP of the production fixed capital of railroad
transportation, have varied service lives.
Some structures serve for very long times, almost forever, and a
finite service life for them can only be adopted arbitrarily; other
= structures can be classif ied as long-term only on the basis of their
continuity of use.
The track superstructure and catenary system of electrif ied railroads '
are often includ~d in the second group of structures. They do not re-
quire depreciation deductions for replacement to be made new because
this occurs when they undergo capital repair. The development of a
methodology For establishing average service lives, time period be-
tween repairs, and norms of depreciation deductions for specif ic types
of transportation structures with indefinitely long service lives is ~
exceptionally important.
This problem has become especially timely with rapid scientif ic-
technical progress and a high rate of renewal of fixed capital in rail-
road transportation. Whereas for rolling stock and various types of
machinery and equipment that represent the active part of fixed cap-
ital we should under these conditions try to establish a decrease in
service life because obsolescence comes much faster for them, for
railroad structures it is not usually very important to reduce the
service life.
A decrease in service lif e and correspondingly an increase in the
norms of depreciation deductions far full replacement of transportation
structures leads to growth in these deductions and a decrzase in the
need for capital repair and modernization. But because the renewal of
such major structures as the track superstructure, stone bridges,
tunnels, and the like takes place during their capital repair, the
capital for these repair jobs is usually inadequate. This is because
it is figured only for capital repair norms and depreciation deductions,
which should also be used for repair work such as full replace-
ment of rails, ballast, and ties, are spent for other purposes not
directly related to replacing wornout elements of the superstructure.
Under conditions of highly intensive use of f ixed capital, a shortage
of degreciation der?uctions for capital repair of track structures
causes a worsening of their technical condition and a decrease in the -
speed of train travel and the carrying and traffic capacities of rail-
road lines.
- Service lives for railroad transportation structures have been deter-
mined based on physical wear and obsolescence taking account of
statistical records of their withdrawal from use. As analysis of
these data shows (Table 31 below)~the withdrawal of railroad struc-
tures from use is negligible and results less from physical wear than
- from reconstruction, the necessity of changing the route of railroads,
and other circumstances that are more closely related to obsolescence.
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Table 31. Withdrawal of Railroad Fixed Capital in
1972, percentage of total.
Of that, with re-
construction and
introduction of
Type of Fixed Capital Total Withdrawn new equipment
Production Buildings 2.7 1.7
Structures 10.5 8.6
Cld Superstructure Materials 27~3 -
Transmission Devices 1.8 1.4
Machines and Equipment 18.8 6.7
Means of Transportation 34.5 5.0
Other Fixed Capital 4.4 -
Total 100.0 23.4
The physical wear of the major railroad structures involves the weather-
ing of building materials, rusting of steel components, rotting of
wooden ties, cc~ntamination of the ballast, warping of rails and contact
wire, and the like. The intensity of physical wear of a structure, and
tt~erefore also its service lif e depend on the reliability of the de-
sj.gn, the strength of the material from which it is made, and operating
conditions.
As an eacample Table 32 below gives the service lives of catenary grid
toweis forecast on the basis of an analysis of the condition of the
towers in use and statistical data on their replacement and repair under
normal operating conditions with all protective measures taken [96,
p 195].
Table 32. Service Life of Catenary Grid Towers of
Electrified Railroads, years.
Tower
Reinforced Con-
crete Conical
Description of the Region Metal Centrifuged
Heightened Atmospher ic Aggressiveness, 25-30 15-20
ground with aggressive soil waters
Heightened Humidity, sharply cor.tinental ;30-40 20-25
climate, average atmospheric aggressive-
ness
~
Normal Conditions 50 40
- Although it does not occur as rapidly as with rolli~xg stock, machinery, r
aad equipment, obsolescence in railroad structures has a very signif icant
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impact on the indicators of labor productivity and prime cost of. ship-
ping. At th~ present time roadbeds with inadequate width, bridge spans
not designed for rolling stock with large axial loads, and linked
track on wooden ties with light and unhardened 12.5 meter rails are
obsolete.
,
Jointless track is the progressive superstructure design. It has a
number of advantages over the linked design. Thus, norms for labor
expenditures to maintain jointless track with reinforced concrete ties
- are 25 percent lc~wer and individual retirement of rails is much less,
- which also means that their service lives are greater. Jointless seg-
ments of R65 rails on reinforced conerete ties can carry a freight
load of 550-600 million gross tons. The service lives of other super- -
structure elements are 15-30 percent greater for jointless track. In
addition, jointless track decreases the basic specif ic resistance to ~
train movement by 10-20 percent (depending on operating conditions)
compared to linked track [98, p 61].
In recent years rail tempering and hardening has been used extensively. i
A savings of 800-1,000 rubles a year is expected for each kilometer of
track where body-tempered and surface-tempered rails are used [98,
p 40]. For this reason a track superstructure design with untempered ;
rails is even more obsolete. ~
I
The physical wear of railroad track structures is eliminated during ~
the process of capital repair. At the same time modernization is {
carried on, which overcomes the continuously growing obsolescence.
Thus, full renewal of the entire structure is accomplished during
_ capital repair by parts. Therefore, it is not advisable to set any I
specific service life for the long-lasting stz-uctures of railroad
_ transportation, as is also true for various similar structures in other
sectors of the national economy which are classified as structures of
indef initely extended use. During development of the norms of depre-
ciation deductions in 1971-1972, however, the service lives of the
roadbed, railLoad tunnels, and track superstructure were limited ax~d
taken as 500 years based on the belief that in this time r.ew forms of
transportation will appear and railroads will bec~~~m~~ completely ob-
solete.
6. The Efficiency of Modernization of Fixed Capital '
Modernization of fixed capital is very important to comply with the ~
adogtec; average service life and prevent losses from obsolescence.
F~r this reason railroad transportation is continuously carrying on
significant work to modernize its rolling stock and track and con-
struction machin es and to reconstruct the track superstructure and
~ signal, centralization, blocking, and communications equipment. For
example, the modernization of freight cars envisions reinforcing
thE, body and replacing wooden planking with metal sides for gondola
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cars; replacing belt trucks with trucks that have cast side members;
outfitting enclosed cars with self-sealing doors; replacing old styles
of brakes with improved ones; equipping freight cars with roller bear-
ings, and so on. Modernization of pasaenger cars includes work to
impsove the lighting system, installation of alkaline storage batteries
in cars with air conditioning, improving electric heating, and so on.
Reconstruction of the track superstructure encompasses wark to bring
its capacity and design into line with the requirements of the growing
fz~eight intensity on the ra ilroa3s.
Key design elements of obj ects of f ixed capital are frequently modern-
ized, which involves large expenditures of capital. Therefore, each
time when the volume of modernization is determined it is necessary
to establish whether it is economically wise. This refers especially
t~ large-scale modernization which is economically efficient only if
it makes it possible to substantially raise labor productivity, re-
~,uc~: the prime cost of shipping, and with the money saved by this
reduction quickly repay mone,y spent to the state. Thus, moderniza-
tion of rolling stock and eqsipment is economically efficient if
- the capital spent for it is repaid quickly, for example in 4-5 years
for equipment and 8-10 years for rolling stock.
The payback period for expenditures for large-scale modernization is
determined according to the formula
T ~ )
~ ` OR - I~l-' C~ QII , ~
w~ere T~K is the payback period of expend itures for modernization, in
years; KM is capital expenditures for modernization, in rubles; cl
and c2 are the prime cost of producing a unit of output before and
after moderniza~ion, in rubles; and Qnis the annual volume of output
after modernization.
The efficiency of modernizi.ng particular assmiblies of equipment,
rolling stock, signal, co�,mmunications, and automation equipment, and
other obj ects is not determined if the modernization is aimed at in-
suring compl3ance with the accepted service life of the ob~ect as a
whole defined according to its basic design components. _
Table 33 shows changes 3n expenditures for modernization of rolling
stock and reconstruction of track structures and signal and communica-
Cions devices paid for from depreciation deductions for capital repair
and on the basis of the capital investment plan. _
As.can be seen, modernization of rolling stock was initially carried
out ~through capital repair funds, but in recent years has been done
more on the basis of the capital investment plan. To some extent
tYds can be explained by the inadequacy of depreciation deductions for
cagital repair. The growth in expenditures for reconstruction of
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Table 33. Expenditures for Modernization and Re-
construction of Railro~~d Fixed Capital, percentage.
Expenditures 1963 1965 1970 1975
Capital Repair
Modernization of Rolling Stock 22.1 22.2 10.8 6.7
Included in above:
Locomotives 3.3 3.5 3.4 2.3
Freight and P~ssenger Cars 18.8 18.7 7.4 4.4
Reconstruction of Track, signal and 53.3 51.4 47.2 56.1
communications devices, and the
like
Total 75.4 73.6 58.0 62.8
Capital Investment
Modernization of Rolling Stock 24.6 26.4 42.0 37.2
and Equipment
Total 100.0 100.0 100.0 100.0
track structures and signal, centralization, blocking, and communica-
tions devices deserves attention. As a result the total volume of
recc~nstruction work done according to the plan for capital repair of
these structures and devices has risen substantially in recent years.
7. Service Lives of Fixed Capital on Foreign Railroads
Given capitalist production relations and bitter competitive struggle,
railroad and other transportation enterprises shorten the service lives
_ of equipment, rolling stock, and transportation structures, striving to
employ methods of accelerated depreciation of fixed capital. For ex-
ample, the following service lives for rolling stock and permanent
structures have been established for the National Railway Society
(SNCF) of France by the General Tax Board [124];
Service Life,
years
Electric Locomotives . . ~ ~ 25
Diesel Locomotives . . ~ ~ ~ 20
Electric Trains . , ~ . ~ ~ 20
Diesel Trains . . . . . . . 15
� Passenger Cars . . . , ~ ~ ~ 20
Freight Cars . . . . . . . . 15
Track Machines and Other
Mobile Equipment . . . . 10
- Buildings . . . . . . . . . 50
Artificial Structures . . . 50
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Service Lif e,
years _
Station Yards and Rail-
road Track . . . . . . . . . 20
Electrification Structures . . 20
Signal, Communications, and
Warning Devices . . . . . . 15
Crossings � � � � � � � � � � � 2~
Eatablishing economically sound service lives for locomotives, cars,
and~railroad structures receives considerable attention in the
Federal Republic of Germany. At the present time the following
- service lives have been adopted for determining depreciation de-
ductions on federal railroads ;122]:
Service Lif e,
yea.rs
Rails . . . . . . . . . . . . 25-40
Wooden Ties and Beams 25-30
Steel and Reinforced
Concrete Bridges . . . . 60
Massive Bridges . . . . . . . 90
Buildings:
Administrative and Service 30-90
Terminals . . . . . . . a 60-80
Production . . . . . . . . 40-90 ~
- Power SupFly . . . . . . . 40-80
- Residential . . . . . . . 80-100
Enclosed Platforms and
Landings . . . . . . . . . 70
Electrical Engineering
Equipment . . . . . . . . 15-40
Mechanical Equipment . . . . 6~40
Electric Locomotives . . . . 40
Diesel Locomotives . . . . . 25-30
Motorcars . o . . . . . . . . 30-35
Passenger Cars . . . . . . . 32
Freight Cars . . . . . . . . 25-30
The service lif e of electric and diesel locomotives on British railways -
h~s been set at 25 years, while for the catenary system the service
lif~e is 33 years and for the equipment of traction substations it is
3U~years.
The Japan National Raiiways adopt shorter service lives for railroad
st-ructures and rolling stock than are used in the countries of Western
Europe and the United States. Some Japanese service lives are shown
bel:ow :
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Servi~e Life,
years
Diesel and Steam Loco-
motives ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 20
Electric Locomotives . . . . . 18 -
Electric Cars:
New Tokaido Line . . . . . 10 ~
Lightened Designs . . . . . 13
Other . . . . . . . . . . . 18 ;
Piese Trains . . . . . . ~ ~
11 '
Passenger and Freight Cars 20 ~
Equipment of Traction Sub-
stations ~ ~ ~ ~ ~ ~ ~ ~ ~ 20
- Reinforced Concrete Station
Buildings . . . . . . . . . 53
Track Superstructure . . . . . 17
Steel Bridges . . . . . . . . 40 ~
Reinforced Concrete Tunnels !
and Other Ra.ilroad I
Structures . . . . . ~ ~ ~ i
60 ~
In thc United States the followi.ng service lives for railroad rolling ~
stock are considered economically sound [120]: 30-40 years for elec- I
tric locomotives, 12-15 years for diesel locomotives, and 25-30 years ~
_ for freigiit car_s. When these periods run out the locomotives and cars i
must be replaced with new ones or rebuilt. In practice, however, ;
these service lives are not observed and the diesel locomotive fleet '
of U. S. railroads, according to the figures of American economists, ~
has become outdated and needs modernization and a significant infusion ~
of new locomotives. !
. i
The car fleet of U. S. railroads also includes a significant number of ~
obsolete types of freight cars. Of the ~ 1,721,000 freight cars on ~
hand in 1975, 103,000 were between 31 and 40 years old and 28,000 ~
were more than 41 years old. According to statistical data on the car ~
fleet, 26 years is the age at which 50 percent of the cars need to be '
replaced. i
i
i
The service lives for the buildings and structures of U. S. railroads
have been set at roughly the same level as in the Western European ~
ccuntries: 40-60 years for artificial structures, 60-80 years for
production buildings, and 15-27 years for the track superstructure. ~
_ These structures are, to a significant degre~e, old and greatly worn.
The critical condition of the railroad track can be judged, for ex-
ample, from figures published in the American press about the
Pennsylvania Central Railroad. Limitations on the speed of train
travel have been instituted on roughly 40 percent of the track of this
road because the track is in poor condition. The total amount of
capital necessary to put the road in normal operating condition is,
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- according to calculations by American economists, 800 million dollars
[123].
Accord~.ng to calculations by the Organization for the Establistunent
of a Rational Transportation System in the United States, 36.4 billion -
dollars is needed to reconstruct railroads in 1970-1980. Of this
amount 18.6 billion dollars is necessary to modernize the car f1eeC,
6.0 billion dollars is required for renewal of locomotives, and 11.8
billion dollars is n~eeded to strengthen the track superstructure and
other structures. =
Thus, despite the relatively short service lives of rolling stock and
structures adopted in the capitalist countries, railroad fixed capital
is greatly worn and requires considerable expenditures for renewal.
- T~e~reason is that the service lives adopt~d are not generally ob-
served, but are intended only to establish high depreciation deduc-
tions. In this way the railroad owners conceal part of their profit
and evade taxes on it.
A great deal of work is being dorie in the railroads of the socialist
cauntries to determine economically advisable service lives for fixed
capital. The following service lives liave been adopted in the
German Democratic Republic for railroad rolling stock:
Service Life,
years
Steam Locomotives . . . . . 37
Electric Locomotives . . . 30
Diesel Locomotives . . . . 25-30
Di'esel Trains . . . . . . . 20
. Passenger and Baggage Cars. 25
In 1974 new norms of depreciation deductions were introduced on the
railroads of the Polish People's Republic. They are figured on the
basis of the following service lives [130].
Service Lif e,
years
Locomotives . . . . . 25
Freight and Passenger Cars. 25
Self-Unload3ng Cars . . . . 20
Rail Cars an~d Trgiler's for
Ttiem . . . . . . . . . . 8
Load-Hoisting Cranes . . . 10
Production and Service
Buildings . . . . . . . 70-100
Standard and Narrow Gage
Rail~oad Track . . . . . 100
~rack Construc~i'on......... 100
S
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Service Lif e,
years
Communications, Signal, Cen-
tralization, and
Blocking Equ ipment . . . . . . 20
The new service lives adopted on Polish railroads are significantly
shorter than earlier ones for equipment, machinery, and rolling stock;
for buildings and track structures they are longer.
Chapter VII. Depreciation Deductions in Railroad Transportation
- 1. Norms of Degreciation Deductions
As it gradually becomes worn, the fixed capital of railroad transporta-
tion demands considerable capital to eliminate the eff ects of the ac-
cumulating wear.* The wear can be partially eliminated during the ser-
_ vicing of fixed capital and perform,ance of technical i.nspections and
ongoing repair. The expenditures �~ncurred in this are included directly
in the estimate of annual operating costs.
But only minor wear is eliminated during technical inspections and on-
going repair. Fixed capital that has been in use for a long time and
has undergone significant physical wear and obsolescence requires either �
replacement with new fixed capital or capital repair and modernization,
which involves considerable material, labor, and monetary expenditures.
Therefore, it would be incorrect to carry out full replacement, capital
repair, and modernization of f ixed capital out of the estimates of an-
nual operating costs because in this case the actual expenditures for
performance of these jobs wauld be applied against the output~of just
one year, whereas the wear warld be cancelled over an extended time
interval. The same thing applies to medium repair work w'_:ich is done
at periods of greater than one year.
_ Nonetheless, some investigators [27, p 91] suggest that it is advisable
to finance capital repair out of the estimates of annual operating
- costs. But most economists believe it is more correct to allot the ex-
penditures for replacement, capital repair, and modernization of fixed
capital carried out concurrently in equal shares to the output produced
with it over the entire service life.
In the USSR and some other coun~ries full replacement, capital repair,
and modernization carried out concurrently, as we11 as medium repair
of f ixed capital done at perf~ds of greater than one year and, in its
economic essence, representing a variation of capital repair, are fi-
nanced through special deductions from the value of the fixed capital.
*
[Russian word for wear, "iznos," includes both physical wear and ob-
solescence, and is used in this way here.]
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This-part of the value of the fixed capital-is called deprecistion de-
duc~t~ons.
The methods of calculating depreciation deductions depend on how these
deductions are determined.according;to the years of the service life of
the fixed capital. A distinczion is.made~.between the even (straight-
line or classical) method:of calculating.depreeiation and uneven,
usually accelerated, methods. In the USSR and most of ths other so-
cialist countries and in certain capitalist countries, the straight- .
line m~thod'is used. In this case the annual depreciation deductions
are equal shares over the entire.service:life of the fixed capital.
Thus, depreciation deductions are.a definite share of the initial cost
of the fixed capital that is gradually transferred to output as the
fixed cap ital becomes worn. Qne part of depreciation deductions is
designated for full replacement of wornout f ixed.capital.; the other is
used~ to finance capital repair~ and concurrent modernization.
- Under conditions of accelerated scieatif ic-technical progress depre- ~
ciat~ion deductions are becoming vastly more important owing to.their
infensified role in renewal of' operating fixed. capital on. a cont~-
porary technical basis. As the.ra~te of technical progress.accelerates
the'impact of obsolescence beeomes increasingly acute. Th~,s causes a
reduction in the service lives of fixed capital and an inerease in de-
preciation deductions designated to create a fund for full replacem.ent.
At the same time, depreciation.deductions for capital repair and con- _
current modernization have a tendency to decrease as service lives
decrease. All this is reflected in the amount of depreciation deduc-
tiaris for full replacement and capital repair; the ratio between them
is changing significantly (see Figure 15 below). -
� Figure 15. Structure of Depreciation Deductions Based on
Primary Rail.ro~ d Activities
w,
Key: (1) For Capital Repair; dp 75q ~Z8
(2) For Fu11 Replacement.. ~e 67,3
_ so ~
~o ~
, ~,Q n2 ~ ~9z .
zo -
0
1960 696J 1970 1975
Tlie pace of scientif ic-technical progress has increased to such an ex-
teiit tdday that it is not wise to perform more than one or two capital
tepairs for many types of machinery and equipment used in railroad
t~~nsportation. Given continued scientif ic-technical progress in the
f~�u~~z the average service lives of rolling stock, machines, arid
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,
equipment will become even shorter and the norm of depreciation deduc-
tions for capital repair for them will decrease or become completely
unnecessary. ,
Depreciation deductions make up a significant share of the prime cost of
shi~ping. As the diagram given in Figure 16 below shows, their share of
railroad operating expenditures is steadily increasing, which is re-
lated to scientif ic-technical ~rogress and the growth of railroad
transportation f ixed capital. The share of expenditures for fuel, elec- ,
tricity, and materials and for wages is decreasing correspondingly.
Figure 16. Share of Depreciation Deductions in Rail- _
road Operating Costs
%
30
27
24 _ - _
ti:~
.
~8 J1
Lf ' 26,0 21 ~
12 � /
9 70,8
140
6 !01 ' '
_
~ f940 1950 f960 1965 1970 , 197J
From 1950 to 1960 the proportion of depreciation deductions in operating
costs rose 50 percent, and in 1975 it was 2.3 times greater than in
1950. However, shipping grew even faster. Between 1950 and 1960 it in-
creased 2.4 times and by 1975 it was 5.2 times greater than in 1950. ;
This led to a decrease in the share of depreciation deductions in the
prime cost of shipping from 0.74 kopecks i~t 1950 to 0.66 kopecks in
1960. The introduction of increased norms for depreciation deductions ~
in 1963 caused a certain increase o~ this share. In 1965 it was 0.75
kopecks, and in 1970 it was 0.74. As a result of the re-evaluation
of f ixed capital and introduction of new, even higher norms for depre-
ciation deductions, their share in the prime cost of shipping in 1975
had risen to 0.89 kopecks.
At the present time the share of depreciation deductions in railroad
operating costs is almost 32 percent. The share of depreciation de-
ductions in the operating cost for shipping is also signtf icant for
other types of transportation. In river transportation, for example,
it is 28.5 percent and for air shipping it is 28.9 percent. The
relative magnitude of depreciation deductions in expenditures to pro-
duce output is less in other sectors of the national economy. The
average for industry in 1977 was 6.9 percent, which included 25.5
percent for electric power production, 15.8 percent in the fuel
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industry, 9.7 percent in ferrous metallurgy, 6.0 percent in machine
building and metalworking, 3.1 percent in the food industry, and 1.4
~ p ercent in light industry [82, p 141].
Norms for depreciation deductions should be-set at auch a level that
the amounts of depreciation received using them correspond to the wear
of fixed capital. Computing.too-large amounts.leads to an un3ustif ied
increase in..the prime cost of shipping. But if depreciation deductions
are less than the expenditures necessary to compensate for wear of
f ixed capital, the capital will be '�'_eaten up"-and.normal reproduction
will be upset. Establishing correct, economically sound norms for de-
preciation deductions is very important.to reinforce cost accounting
and keep fixed capital in good condition.
.The first studies of the necessity for and amounts of norms of depre-
ciation deductions for replacement of fixed capital in USSR railroad
transportation go back to 1925. One of them was the work of prof essor
M. M. Filonenko-Borodich on theoretical issues of depreciation of
railroad fixed capital [105 j .
A norm of depreciation deductions in .railroad transportation was first
used.in 1927. It was established only for full replacement of f ixed
cap ital and was set at 2.5 percent of the cost of the capital. In 1930
this norm was raised by 2.2 percent in connection with the establish-
.ment of depreciation deductions for capital repair. Thus, the tatal
norm of depreciation deductions was 4.7 percent.
The norm was set at this level on the ba.sis of an analysis of railroad
reports for a number of years and this norm was used to pian depre-
.ciation deductions system-wide. It was not possible to use it to de-
termine deductions for rep3~acement and capital repair of particular
- types of fixed capital and for various technical-economic calcula-
tions.
In 1938 a decree of the USSR Soviet of People's Commissars recognized
the advisability of separating out a norm for capital repair from the
o~erall norm of depreciation deductions in~order to increase the ac-
�countability of economic managers for timely capital repair. Accord-
ing to the official instructions of the USSR State Bank entitled
"Procedures for Financing and.Monitoring the Use of Capital for
- ;Capital Repair," which was~rati�ied by the:.Economic Council.of the
:USSR Soviet of People's Commissars on 15 April 1938, the uae of capital
..;designated for .capital repair . to accomplish other purposes was pro-
:hibited. Since that time the planning, computation, and use of de-
;pr ec3a:ion deductions for capital repair of fjxed capital has been
:.~done separately from deductions for full replacement. ~
In 1939 the norm of�.depreciation deductions.for capital repair was
_ .za~sed to three pereent in connection with the increase in the cost of
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capital repair for railroad transportation fixed capital, owing chiefly
to the inclusion of expenditures to replace ties, rails, and ballasts;
at the same time the norm of deduction for full replacement was de-
creased to 1.7 percent. Thus, the total amount of the norm remained un-
changed at 4.7 percent.
Because this norm was established applicable to the structure of rail-
road f ixed capital in 1930, as railroad transportation was increas-
ingly supplied with new equipment it became progressively less appro-
priate to the cl.anging structure of f ixed capital. Depreciation de-
_ duction norms differentiated by types of fixed capital were required
to eliminate this discrepancy. In addition, such norms were needed for
correct computation of depreciation, determination of the prime cost of
freight and passenger conveyance by railroad, and for various types of
technical-economic calculations involved in designing new equipment
and determining proper conditions for most efficient use of fixed
capital.
During the general inventory of fixed capital in 1940 brigades of en-
gineer-specialists formed by sectors of railroad transportation coarked
out new depreciation deduction norms differentiated by types of fixed
capital. This project was being done on a uniform methodology, but
it was interrupted by the start of the Great Patriotic War and not
carried through to the finish. Nonetheless, the Central Inventory
Bureau, using the results of work by the brigades of engineer-
specialists and also data from the general inventory and re-evaluation
of fixed capital based on conditions of 1 January 1940, drew.:up a
"Draft of Norms of Depreciation Deductions for Railroad Transportation -
Fixed Capital." But these norms were not ratified or used in prac-
tice.
In the postwar years depreciation deductions were planned on the basis
of a single norm, established by the Ministry of Railroads in 1952 at
6.5 p~rcent, for all f ixed capital. Of this amount six percent was
used for capital repair and 0.5 percent for full replacement of fixed
capital. This general norm of depreciation deductions was differen-
tiated by groups of enterprises and organizations included in the
Mi.nistry of Railroads system. For the production f ixed capital of the
- railroads it was set at 7.2 percent (6.6 percent of which was for
capital repair), while for housing and municipal services it was 0.8
percent, for the structures of the Moscow Subway - 1.8 percent, for -
the adm~nistration of direct-route sleeping cars - 4.7 percent, and
for industrial enterprises of the Ministry of Railroads - 5.8 per-
cent.
In 1956 the government adopted a decree on re-evaluation of f ixed
capital and development of depreciation deduction norms differentiated
by types of fixed capital. The re-evaluation was carried out based on
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conditions as of 1 January 1960 and depreciation norms were developed
by the sectorial scientific research institutes.
Norms of depreciation deductions were developed far specif ic types of
railroad f ixed capital in 1959-1960 by the All-Union Scientif ic Research
Institute of Railroad Transportation. The Economic Planning Adminis-
tration, Finance Administration, and sectorial main administrations
of the Ministry of Railroads took part in.this work.
The depreciation deduction norms developed following uniform methodo-
logical instructions from USSR Gosplan and differentiated by types of
fixed capital were put into effect on 1 January 1963. Introduction of
these norms led to an increase of 21.8 percent in the total amount of
depreciation deductions for primary railroad activities compared to
196~; this included an increase of 35.6 percent for full replacement
and� 17.6 percent for capital repair, primarily at the expense of inedium
repair which had formerly been f inanced directly from annual operating
costs.
As time passed, however, these norms became outdated and failed to keep
up with the railroads' need for capital for replacement, capital repair,
and modernization of fixed capital. The gap between operative norms
and this need had a particularly strong effect on t~e technical condi-
tion of track structures. Betewen 1 960 and 1972 the intensity of
traek use, characterized by freight intensity in millions of gross ton-
kilometers per kilometer of total rrack length grew by more than 50
percent. The cost of capital repair of one kilometer of track in-
cressed by almost 65 percent in this period. The growth in':the cost
of capital. repair of the track was not just a result of the rise in
prices for materials and more complex working conditions; the need to
perform technical reconstruction of the track was also a factor. This
involved installing reinforced concrete ties, heavy rails, gravel
ballast, jointless track, and other articles to bring the.superstruc-
ture into line with the volume of freight and passenger traffic. All -
this work demanded significanC capital.
The depreciation deduction norms established for the track super-
s~ructure did not fu11y take work to strengthen the track into account
and did not reflect the growth in railroad traffic intensity. Deduc-
tions based on these norms were inadequate and, although it increased
in�money terms, the volume of capital repair o� the supezstructure in
physical terms decreased steadily owing to the increased cost of re-
pa~ring one kilometer of track.
Ttie~ Ministry of Railroads was forced to use depreciation deductions
fxo~ the cost of other types ~f f ixed capital, abave al.l rolling stock,
Co perform the minimum necessary volume of repair work on the track.
D~~.pite this, the shortage of capital for capital. track repair re-
mained signif icant and temporarily increased coefficients were
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established to the depreciation deduction norms for track structures.
_ Use of these coeff icients made it possible to increase the capital al-
located for capital repair of track structures by 115 million rubles in
1972, 200 million rubles in 1973, and 280 million rubles in 1974 [70).
The depreciation deduction norms introduced in 1963 also became out-
dated because the service 1 ives of fixed capital, above all rolling
stock, machinery, and equipment, from which the norms were calculated
were too long and did not take suff icient account of the high rates of
scientific-technical progress and obsolescence of fixed capital today.
Moreover, the classification of repair work and periodicity of capital
repair were changed in many cases as a result of the increased in-
tensity of use of f ixed cap ital and employment of progressive methods
of operation. Depreciation norms did not take this into account and
the capital deductes using them was less than was actually needed.
These norms also failed to consider the rise in prices for materials,
fuel, and electricity, increase in wage rates, and change in norms
for planning and building ra ilroad structures which took place in
1963. All these factors caused an increase in expenditures for capital
repair and replacement of f ixed capital. At the same time, factors
such as the growth in labor productivity, improvement in the organiza-
tion of repair work, and broad application of inechanization of
construction and repair work, tended to reduce these costs.
The establishment af depreciation deduction norms without taking ac-
count of the increased intensity of use of fixed capital, the rise
in prices for materials, fuel, and electricity, the increase in wage
rates, the change in scheduled time between repairs, and other factors
that determine expenditures for replacement and capital repair of
fixed capital made it necessary to revise the depreciation deduction
norms in effect since 1963. In 1969 a resolution was ~dopted to re-
evaluate fixed capital and more precisely differentiate depreciation
deduction norms. Methodological instructions ratified by USSR Gosplan
were followed in this work, just as they had been during the develop-
ment of depreciation deduction norms for specific types of railroad -
transportation f ixed capital in 1959-1960.
2. Basic Principles and Methodology of Calculating Depreciation
Deduction Norms
Depreciation deduction norms are established for all types of f ixed
capital in railroad transportation: buildings (production, resldential,
municipal, and cultural--domestic), structures, transmission devices, -
machines, equipment, rolling stock, tools, inventory, and long-term
planted areas. The norms are based on even wear by years. The objects
of depreciation are the f ixed capitai of the production subdivisions
of the railroads used in natural form for long periods of time in
tl-.~ process of freight and passenger conveyance.
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Norms of ~~preciation deductions are determined for both simple and
ccmplex inventory objects. ~rthermore, they are calculated not for
each object which differs by individual characteristics, but �or groups
of objects that have the same production designation and roughly
equivalent average service lives. Such norms or depreciation deduc-
tions are averages for the obj ects making up a particular group.
The capital allocated based on depreciation norms forms the deprecia~
tion �und, which is used for simple reproduction of fixed capital,
that is, compensation for normal natural wear in the sh3.pping process.
One part of the depreciation fund, which is used for partial compen-
sation for wear by capital repair and concurrent modernization, is
expect~d to guarantee the functioning of the ob~ ect with its assigned
technical-operating indicator s for the full established service life.
The other part is used for full replacement of ob~ects of fixed
_ capital that have been withdrawn when these objects were no longer
usable or their use was economically unwise. Therefore, the norms of
depreciation deductions are also determined separately for full re-
- placement of f ixed capital and for capital repair taking into account
concurrent modernization.
Determ~ning the norms of depreciation deductions separately for full
_ replacement and capital repair of fixed capital does not, however,
mean that these are two diff erent norms. On the contrary, the norms
are closely interrelated parts of a singie general depreciation norm. -
Where the average service lif e, which is the primary indicator for de-
termination of depreciation norms, is shorter the norm of de3uctions
f~r full replacement will be higher and the norm of deductions for
_ capital repair will be lower because, when other conditions are equal, _
Che amount of capital repair will be less.
Establishing a correct ratio between deFreciation norms for full re-
placement and for capital repair is very important. As a rule~, ex-
penditures for capital repair should be significantly less than the
cost of a new object. In the absence of factors that make it neces-
sary ~o continue using the particular object, the maximum expenditure
for capital repair should not be more than half of the original cost
o� zhe ob~ect [28]. The criterion of maximum cost for capital repair
- often varies for different types of fixed capital depending oa
_ scarcity and the existing possibility of replacing those types of roll-
ing stock, machinery, equipment, and other objects of fixed capital
- whose continued use is economically unsound.
Norms of fixed capital deprec iation deductions 3re usually established
for average operating conditions. Deviations from these conditions
_ are taken into account by correction factors applied to the depreci-
ation norms. These factors take account of: (1) degree of loading
_ of machin~s and equipment, which depends on the number of shifts and
number Qf hours they work in a day, in other words the intensity of
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I
I
~
use; (2) d~gree of aggressiveness of the environment in which the !
fixed capital is used; (3) special climatic and geological conditions
of the region. ;
i;orrect determination of depreciation deductions for full replacement
and capital repair of f ixed capital is growing in importance with rapid
scientific-technical progress. Norms for full replacement should
stimulate accelerated replacement of machinery, equ ipment, and rolling
stock above all. Accelerating the turnover of money embodied in f ixed
capital plays aa important part. This can be accomplished either by
establishing shorter service livesfor means of labor or by changing
the method of calculating depreciation deduction norms.
In view of the need to stimulate scientific-technical progress and re-
place equipment and machinery quickly the question arises of the wisdom
of using the methods of accelerated depreciation of fixed capital in a
socialtst economy [27, 45, 95]. These techniques are based on the usp
of decreasing rates, where depreciation deductions gradually decrease
as the age of the fixed capital grows.
In addition to advocates of use of accelerated depreciation techniques,
there are also opponents. For example, Yu. I. Lyubintsev, reviewing
the issue of using accelerated depreciation in a socialist system, ob-
_ serves that "the methods of accelerated depreciation employed under
capitalism not only lose their advantages when transferred to socialist
- production, but in our opinion become a brake on technical progress,
an addi.tic;nal financial burden at a time of vigorous changes in the
te=hnical re-equipping of production, particularly manufacturing
industry" [75, p 164]. A. V. Vikhlyayev has also noted the retardant
' effect of accelerated depreciation on the introduction of new ma-
- chinery [34].
The starting point for deciding the question of the wisdom of using
accelerated depreciati~n methods under socialist conditions is the
qu estion: which of the methods mcst fully reflects the wear of fixed
- capital in the particular period of its service life. The wear of
�ixed capital is not even over time, of course. Generally, in the
first years of the service life when the f ixed capital is still new,
wear is not greater, as some economists who propose accelerated depre-
ciation methods believe [95], but less, and it grows as the fixed
capital ages. This point was emphasized very vividly by K. Marx,
who compared expenditures for the repair of ineans of labor in dif-
ferent periods of their life with a~erson's needs for medical care.
Noting the increase in expenditures to eliminate wear as means of
labor grow old, K. Marx wrote the following: "It is exactly like an
old person who must, to avoid a premature death, spend ;nore for medical
care than a person f illed with the strength of youth" [1, Vol 24,
p 196] .
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The problem of determining the intensity of increase in wear for spe-
cific types of fixed capital in different periads of the service life
has not been thoroughly studied yet. But regardless of when the wear
of f ixed capital is greater and when it is less, expenditures to
eiiminate the weai should always be applied in equal sha.res to the
value of the output created with the participation of this f ixed -
capital. This is precisely the purpose of depreciation. Otherwise
it is impossible to substantiate the need to f inance capital repair
through a specially formed depreciation fund. From this point of
view, the method of i.ncreasing iiepreciation proposed by Yu. I.
Lyubimtsev [75, p 167] can hardly be applied in practice, even though
~ it does correctly reflect the growth in physical wear and obsolescence
of fixed capital with the pass3ge of time.
Thus, under socialist conditions accelerated depreciation of fixed
capital is economically unwise.
Proposals to determine depreciation deduction norms for replacement
with due regard for the time factor have received some distribution
[18, p~3]. There are diff ering views on this issue. Advocates of
establishing depreciation deductions norm with due regard for the time
factor usually point out that the depreciation fund for full replace-
ment of f ixed capital is not spent in the period when it is computed,
but rather later when the fixed capital is being withdrawn from use.
To establish norms they propose using the relationship derived by
- A. L. Lur'ye in 1948 for cha.nge in depreciation deductions when vari-
ations with different service lives are compared [7~5, p 85]. Taking
the eff ect of postponing expenditures into account, depreciation
deductions for full replacement of equipment can be determined from
the equation ~=t_1
Ko = ~ A(1 �+-Eg)`~ (30) .
~ a ~
where Ko is the cost of equipment with a service lif e of t years; -
A is depreciation deductions; Eg is the normative coefficient of effi-
- ciency of capital investments; i is the values of the service life of .
the equipment in series from 0 to t-1 years.
_ To determine depreciation deductions we calculate them for the last
year of the service lif e of the equipment
~ 31
t ~ A ~ ~ Es~t _ A (1-1-~ x)_ -1 = Ko. ~ )
too ~
From this the depreciation deductions
ER K� ~
A (1 + EH)` - t ' 32)
The norm of depreciation deductions for fu11 replacement HB will be
(in percentage)
A E~ 100. (33)
HH _Ko 100 = ~1+EfJ~-~
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Depreciation deductions determined by formula (32) taking the time
factor into account are signif icantly smaller than deductions calcu-
lated by the conventional methods. The difference is even more sig-
nificant when the normative coeff icient of efFiciency of capital
investment is higher and the service lif e of the objects of f ixed cap-
ital is longer. For example, a structure which has a cost of 1 million
rubles and a service life of 50 years will have depreciation deductions
of 2U,000 rubles a year calculated by the conventional formula; using
theformula taking the time factor into account where E H= 0.12 they
will be 42 0 rubles, a much smaller amount. Therefore, when depreci-
_ ation deductions are calculated using a norm determined taking the time
factor into account, the initial cost is not fully transferred to the
output created with this obj ect.
Some other students of this issue support the proposal to determine
dt~preciation deduction norms taking the time factor into accoun~. For
exampl e, S. Zakharov [46] believes that existing norms of depreciation
deductions for full replacement are too high because they are applied
to the original cost of the fixed capital at a time when full replace-
ment is done at the replacement cost, which is lower than the original
cost, The significant amounts of unused depreciation deductions
formed in this way, the author believes, should produce a prof it cor-
responding to the average normative coefficient of efficiency of
capital investment for industry, which is 0.15, if used elsewhere.
Going on from this, he proposes that norms for depreciation deductions
for full replacement be established by a formula using co~plex per- ;
centages. In the case of long service lives, however, depreciation
deductions determined by such norms become negligible and for practical
purposes the share participation of f ixed capital in the production of '
output disappears almost completely. ~
Another i.mportant circumstance that cannot be ignored is that the ad-
vocates of determining narms of depreciation deductions taking the
timefactor into account assume that wornout fixed capital will be '
restored to its earlier form, that is, without taking scientific- '
technical progress into account. K. Marx wrote: "Means of labor cus- '
tomarily undergo constant change owing to industrial progress. There-
fore, they are replaced not in their original form, �but in the changed
form" [1, Vol 24, p 191). Therefore, the depreciation deductions must
_ be calculated so that they will cover t-he cost of purchasing fixed ~
capital which is more productive, reliable, and economical than the '
former design, and usually also more expensive.
_ Depreciation deductions for full replacement of fixed capital should
stimulate the introduction of new equipment. This was expressly en-
visioned by the Directives of the 24th CPSU Congress on the Five-Year
Plan of Development of the USSR National Economy for 1971-1975: "De-
velop and gradually introduce: new, shorter periods of depreciation
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for production equipment, limiting the volume of inefficient capital
repair and increasing the share of depreciation deductions alloted for
replacement of wornout and obsolete equipment" [4, p 242].
Thus, it hardly seems wise to determine depreciation deduction norms
taking the time factor into account.
Another debatable proposal is made by V. S. Ligonenko, who believes
that the "norm of depreciation for capital repair of f ixed capital must
be determined with due regard for the time factor and length of cycles
between repairs" [73, p 79].
At the present time norms of depreciation deductions for full replace-
ment HB are usually determined as a percentage of the original (restor-
- ation after re-evaluation) cost of the f ixed capital using the formula
HB = 100/t, (34)
where t is the service life of the object (depreciation) in years.
The depreciation norm calculated in this way shows as a percentage
that part of the cost of the object ~ahich must be deducted each year
to accumulate sufficient money during its service life to fully re-
place the wornout object with a new one.
In a case where an object that has been withdrawn because of wear can
be i~sed as scrap metal, wood, and the like, the norm of depreciation
for full replacement is determined taking the so-called liquidation
value into account, according to the following formula
~ 100 I7-JI
8 t !I. ~
where lT is the original cost of the object of fixed capital and A ia ,
the liquidation value, defined as the difference between earnings from
sale of the withdrawn object and the cost of wark to dismantle it and
turn it into scrap.
This norm of depreciation deductions is determined only when the
liquidation value of ob~ects of f ixed capital is quite large.
No:rms of depreciation deductions for capital repair and modernization
of structures, rolling stock, machinery, equipment, and other forms
of railroad transportation fixed capital HK are determined as per-
centages of their original cost using the formula
H Kn-}-Cm-}- M 1 C0, (36)
" - nr
w~.ere K and C are expenditures for one capital repair and medium repair
respectivply, in rubles; n and m are the number of capital repairs and
medium repairs respectively during the service life of the ob~ect of
fi~ced capital; M is expenditures for modernization of a unit of equip-
ment, means of transportation, or other forms of fixed capital during
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In some cases the liquidation value that forms duri.ng capital repair
must be taken into account just as it was in determining the depreci-
ation norm for full replacement. For example, when capital repair is
done on wooden snow fences, a significant liquidation value is formed
' through use of the unsuitable fencing material as f irewood. The total
cost of capital and medium repairs recorded during the calculation of
the norm of depreciation deductions for capital repair should be re-
duced by this value.
The number of ca~ital repairs is determined as the quotient from di-
viding the service life of the object by the length of the period
between capital repairs. In this case it is considered that the f inal
capital repair is not performed
_ n - N 1~ ~3~)
where N is the period between capital repairs in years.
The number of inedium repairs performed at periods of more than one
year during the service life of the object is computed according to
the formula
t t
m = N1N~ (38)
where N1 is the period between medium or medium and capital repairs
in years.
The periodicity of capital and medium repairs is established by ap-
proved rules for the performance of repair work on particular types
of f ixed capital.
Expenditures for modernization carried concurrently with capital re-
pair are usually taken out of capital repair expenditures. If this
cannot be done, expenditures for capital repair and mode~nization
are taken as a total amount. In this case the formula for calculating
the depreciation norm for capital repa~is is simplified and takes the
f orm Kn-~Cm
Hx = 100. (39)
For complex objects of capital consisting of several simple objects,
the norm of depreciation deductions for full replacement IiQ is de-
termined taking the service lives of the simple ob~ects in~o account
Ha ` 100 II Ebk - ?I (40)
t II '
- where t is the service life of the complex obj ect as a whole taken on
the basis of the service life of the longest lasting simple object,
in years; TT is the original cost of the entire complex ob~ect, in
rubles; b is the cost of particular simple objects replaced k times
during the service life of the complex object;Jl is the liquidation
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value of the complex object taking withdrawal of simple objects into
account, in rubles.
The norm of depreciation deductions for capital repair of complex ob-
_ jects H,K is determined with due regard for annual deductions for capital
_ repair of simple objects based on the established periodicity of repair
work for them HK _(EK-}.EC-}.1y) 100, . 41)
/ Ilt ~
where E K is expenditures for capital repair of simple objects during the
service life of. the complex object, in rubles; f C is expenditures for
medium repair of simple objects daring the servi~e life of the complex
object, in rubles; M is total expenditures for modernization during the
full service life of the complex object, in rubles.
The norms of depreciation deductions for each type of fixed capital iri
railroad transportation are calculated according to the formulas ~iven
above. For objects with indefinitely long service lives that are re-
newed in the process of capital repair, however, norms of depreciation
deductions for full replacement do not have to be established. For
them it is advisable to determine only norms for capital repair and
modernization [55].
This point of view is shared by V. Yu. Budavey, who believes that .
"to insure continuity of production society must provide tha.t the cost
of appropriate output and services include only expend~tures for re-
pair of long-lasting structures. Depreciation deductions for re-
placement need not be made in this case" [27, p 104J. _
Another point of view, however, is also expressed in print. L. M.
Kantor, for example, believes that depreciation deductions for both
replacement and capital repair must be computed for long-lasting
- structures (among which he includes the track superstructure). Re-
ferring to the accelerated pace of scientific-technical progress, he
argues that a lOQ-year service life is very long and cannot be adopted
for any of these structures. The 500-year service life adopted for _
the track superstructure and other long-lasting structures is much too
high, while the norms of depreciation deductions for fu11 replacement
are too low [16, pp 226-227].
D. A. Baranov, reviewing the question of the depreciation of fixed
capital whose replacement occurs by parts and classifying the track
superstructure in this group, writes: "The incredible exaggeration
- of the average period of turnover for this type of f ixed capital
(from 18.2 to S00 years) came about because it was supposed that full
renovation of this type of fixed capital can only be done all at once,
by laying the entire railroad roadbed over and, furthermore, that the
reglacement of wornout simple basic elements is capital repair of
initially invested f ixed capital, not true renovation by parts" [20,
P 47l� -
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Such a position is understandable. Indeed, if we base our thinking
on the service lives of the particular elements of the track super-
structure, the average weighted service life is right around 18 years.
But it must be kept in mind that with this approach there can be no
norm of deductions for capital repair and modernization and all deduc-
tions for replacement will have to be used for capital repair, which
is accomplished by replacing different elements of the track super- -
structure. This distorts the very meaning of the inventory object
"track superstructure," and generally accepted concepts of capital re-
pair of track disappear. Therefore, for the track superstructure as
for other objects of fixed capital which have indefinitely long ser-
vice lives, only a norm of depreciation deductions for capital repair
and modernization should be established. But because these structures
may become obsolete in the future, a service life of 500 years is
adopted for them and a norm of depreciation deductions for full replace-
ment o~ 0.2 percent is established.
It is advisable to determine the norm of depreciation deductions for
capital repair of the track superstructure per 1 million gross ton-
kilometers taking the intensity of track use into account. Before the
norm is determined a calculation should be made of annual expenditures
for capital, medium, and track-li~ting repair based on operative re-
pair schedules and the unit costs of particular types of repair. For
example, the depreciation norm per 1 million g~x~oss ton-kilometers for
mainlines H~ may be determined by the formula
Hr = hB rt' C+ np 100~ (42)
NT n~ .
where KB is the cost of one capital repair of one kilometer of track
superstructure, in rubles; C is the cost of all medium repairs of one
kilometer of track superstructure in the period between capital re-
pairs, in rubles; TTP is the cost of all track-lifting repairs of one
kilometer of track superstructure in the period between capital re-
pairs, in rubles; HT is the norm of tonnage between capital repairs, in
millions of gross ton-kilometers; TfB is the initial cost of one
kilometer of track superstructure, in rubles.
The norms of depreciation deduction for medium and track-lifting re-
pair of station tracks, switches, and sidings belonging to the rail-
roads can be determined in a similar fashion.
The full norm of depreciation for all types of track repair (capital,
medium, and track-lifting) as a percentage of total replacement cost
of the track superstructure in this case co.uld be determined per 1
million gross ton-kilometers by dividing the total annual sum of ex-
penditures for capital, medium, and track-lifting repair of the super-
structure of all railroads (mainline, station, siding, including
switches) by their total replacement cost and the calculated amount of
- average freight intensity in millions of gross ton-kilometers per
kilometer of total length of mainlines and multiplying the resulting
ratio by 100. -
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- It i s also more correct to determine the norm of depreciation for the
catenary system of electrif ied railroads with consideration of the in-
tens ity of its use, which is expressed by the number of passages of
curr ent collectors, and only f.or capital repair. This is advisable be-
caus e the catenary system is renewed caztinuously by replacement of
individual design elements during capit~il repair.
It is also advisable to establish norms of depreciation deductions
for capital repair considering intensity of use for rolling stock.
For example, they may be determined depending on annual distance
traveled by locomotives and cars [55].
3. Development of Depreciation Norms in 1972
The depreciation norms now in effect were worked out in 1972 and put
into effect on 1 January 1975.
These norms were developed with due regard for the need for acceler-
ated replacement and modernization of obsolete fixed capital. Shorter
- depreciation periods were adopted for calculating the norms in order
to limit the volume of inefficient capital repair and increase the
share of depreciation deductions for replacement of wornout and obso-
lete types of machinery and equipment.
In the process of developing the norms the average service lives and
periods between repair for fixed capital were determined more pre-
cisely. Economically saund service lives were determined on the basis
of calculation and analysis of economic and tectm ical factors, in-
clud ing; physical wear and obsolescence of fixed capital, efficiency
of expenditures for capital repair and related modernization, actual
age of fixed capital in operation, actual possibility of replacing
_ part icular types of equipment and rolling stock with new, improved
models, and so on.
The average service lives of rolling stock, machinery, and equipment
wexe established with due regard for the obsolescence of existing units
and the economic benefits of newly built units. It was taken into ac-
count in this that the more economical the new units were, the more
obsol ete they made existing machines, equipment, and rolling atock,
thus reducing their service lives.
The average service lives of locomotives, cars, machines, equipment,
and t ools established by sectorial divisions of the Central Scientific
Resea.rch Institute of the Ministry of Railroads were tested at rail-
road enterprises, reconcil.ed with the main sectorial administrations
of the Ministry of Railroads, and adopted for calculating new norms
of depreciation deductions.
Fvx the large, expensive railroad structures such a~ the roadbed~,
reinf orced concrete and metal bridges, tunnels, and other long-lasting
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objects, thr service lives were the maximum allowable based on wear
and ranged from 80 to 500 years.
During the development of new norms of depreciation deductions sub-
stantial attention was devoted to precise determination of the perio-
dicity of fixed capital repairs. In most cases the repair schedules
raCified by the Ministry of Railroads were adopted for calculating
the norms. In this case the periods between repairs established by
the ministry in 1969-1971 were generally taken without alteration.
But if the repair schedules were established earlier than 1969, they
were analyzed and compared with actual times reported on the railroads
and enterprises of railroad transportation; the volume of capital re-
pair had to be considered. In the case of insignificant deviations
the ratified capital repair periods were also adopted without modi-
f ication for calculating depreciation norms. Where there were signif-
icant deviations in the volumes and times of capital repair from those
ratif ied by the ministry these indicators were determined more pre-
cisely taking into account actual performance and the recommendations
of the railroads and main administrations of the Ministry of Rail-
roads.
Data on the replacement cost of fixed capital and information from
railroads, plants, and other railroad transportation enterprises con-
cerning actual service lives and expenditures for capital repair and
_ modernization were used to w ark out the new norms of depreciation
deductions.
In all cases the replacement cost of f ixed capital was taken on the
basis of the ratified price lists and schedules specially developed
for the re-evaluation of fixed capital based on condition as of
1 January 1972. This established a connecti.on between the depreci- '
ation deduction norms being developed and tl:e replacement cost of
the fixed capital obtained after re-evaluation.
Expenditures for capita~ repair of track structures, the catenary
system, and other complex objects were determined by design elements
based on the cost of repair and service lives.
The prices for repair contained in the ratif ied price lists were
- used in determining the costs of capital repair of rolling stock,
machinery, and equipment. An analysis was made of tt:e correspondence
between price list prices and actual expenditures for repair over -
several years. Expenditures for capital repair wer~~ adopted with con-
sideration of such factors as change in prices, lower cost of repair
owing to better organization and reduction of labor inputs to do
repair jobs, use of more wear-resistant materials, decrease in the
cost of spare parts in connection with their production at spe-
cialized plants, and others. In the absence of factual data on ex-
- penditures for capital repair, these expenditures were taken from
184
FOR OFFICIAL USE ONLY
APPROVED FOR RELEASE: 2007/02/08: CIA-RDP82-00850R000300030004-1

APPR~VED FOR RELEASE: 2007/02/08: CIA-RDP82-00850R000300030004-1
FOR OFFICIAL USE ONLY
the ratified price lists or calculated by