Friday, December 31, 2010

Lots of work on the track
Railways needs to expand capacity through private and Govt funding.

Sector Outlook

Upgradation work: There is a backlog of sanctioned projects including track expansion, signalling and gauge conversion, valued at Rs 1,00,000 crore. Out of this, the Railways have identified throughput enhancement works valued at Rs 30,000 crore for immediate attention.

Mamuni Das

New Delhi, Dec. 27

In 2011, the key challenge for Indian Railways will be to mobilise thousands of crores of funds – both from the Government and private sector — for its capacity expansion plans. This is important to ensure that the Railways can capture a part of the incremental traffic generated by the country's eight per cent plus GDP growth story. Railways have to expand capacity broadly at three layers – tracks, rolling stock and terminals.

For some expansion plans they can pool in the resources from private sector through various models of partnership; but for core areas which are unlikely to be profitable, the Railways will have to depend on Government help given that their surplus is hovering at low levels.


For instance, there is a backlog of sanctioned projects including track expansion, signalling and gauge conversion, valued at Rs 100,000 crore. Out of this, the Railways have identified throughput enhancement works valued at Rs 30,000 crore for immediate attention.

“These have to be prioritised to increase the freight capacity of Railways to 1,500 million tonnes a year in 3-4 years against the existing levels of about 900-1,000 million tonnes,” says Mr Samar Jha, Financial Commissioner, Railway Board. Almost 70 per cent of the Railways' income is from freight movement.

To arrange the funds, the Railway Ministry had tried to get a dividend waiver for five years from the Centre. It has also proposed in its Vision Document the creation of an accelerated rail development fund to take up the works.


Justifying the Ministry's demand for increased funding from the Centre, Mr Jha says, “Barring American railroads, most of the railroads receive fairly high levels of Government subsidy. We must remember that from rail links along the Golden Quadrilateral and its diagonals in our country, there was no return for 50 years. Moreover, this is the most environment-friendly mode of transportation.”

To attract investments into some of the last mile rail connectivity projects, the Ministry has modified some features of Railways infrastructure for industry initiative (R3i) policy.

“We have already seen seven applications for investments under the R3i model,” Mr Jha said, adding that the Ministry will soon come out with its policy to open up the coal and iron ore rail linkages for private funding.

On the rolling stock front, Railways would have to bid the projects to set up the electric and diesel locomotive and the supporting ancillary unit factories on a public-private partnership basis. The qualifying bid rounds for these projects are already through for a few months now. The financial bid due dates for electric loco factory at Madhepura and ancillary unit at Dankuni are now slotted for January after several rounds of date shifts. “The loco unit projects are on track,” insists Mr Jha pointing out that the Railways have to be careful since these are based on new, complex, models, and involve partnerships with private sector over long periods.


On the passenger segment, the Railways' will have to take steps towards increasing revenues and reduce losses that run into Rs 14,000 crore.

The Finance Ministry and Planning Commission have been trying hard to get the Railways to bring the passenger fares to reasonable levels since there have been no significant increase for the last six-seven years now. But, indications are this is not really on the priority list of Railways.

“Railways have a social obligation to serve a vast majority of India's population, which is poor. There are movements of migrant labour force from Bihar, Uttar Pradesh, Andhra Pradesh to Punjab and other States where infrastructure projects are on. This mobility has to be maintained for the country's growth,” Mr Jha says.

In fact, to increase the revenues; the Railways in 2010 have resorted to several freight fare increase exercises, further intensifying the cross-subsidisation levels debate. On the cost control side, the Indian Railways does not have many reasons to cheer because even though major impact of the Sixth Pay Commission is expected to end by March; there is a recurring incremental expenditure of Rs 15,000 crore a year that has to be absorbed. With this, the staff costs would be almost 50 per cent of the operating expenditure of the Railways


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