How Indian Railways will save thousands of crores in its energy bill

With an aim of reducing the energy bill, Railways have firmed up plans to import crude oil directly and started procuring power from the generators.

By: PTI | New Delhi | Published: August 17, 2016 

Indian Railways consume around 2.8 billion litre diesel annually at a cost of Rs 18,000 crore – around 18 per cent of the working expenses. The procurement price is governed by a rate contract settled through an open tender by the Railway Board. (Source: Reuters)

With an aim of reducing the energy bill, Railways have firmed up plans to import crude oil directly and started procuring power from the generators.

The diesel procurement policy has been reviewed and it has been deciced to import crude oil directly and get it refined at oil marketing companies here, said a senior Railway Ministry official.

Considered to be part of the larger reform drive, Railways have also floated a tender for selection of a consultant to identify alternate procurement strategies enabling the transporter to procure diesel at market linked prices.

Indian Railways consume around 2.8 billion litre diesel annually at a cost of Rs 18,000 crore – around 18 per cent of the working expenses. The procurement price is governed by a rate contract settled through an open tender by the Railway Board.

Through the contract with the oil marketing companies, which is valid for a year, zonal railways place diesel orders for supply. Oil depots maintain at least 7 days of inventory on an average, the cost of which is borne by the Railways.

It will be cheaper for railways than the existing practice of fuel procurement and railways will save at least 10 per cent of the current fuel bill, the official claimed.

Accordingly, railways has sought Petroleum Ministry’s permission to import crude oil directly.

“We are discussing the issue of procurement of crude and booking refinery capacity to process our crude as a service as only 40-50 per cent of crude converts to diesel. So an arrangement with the refiner to buy back the remaining products of crude processing needs to be put in place,” he said.

On the power front, railways is planing to save Rs 3,000 crore in sourcing electricity by proposing to procure power through competitive bidding.

In the Rail Budget, Railway Minister Suresh Prabhu had said that to bring down the cost of electricity, the Railways will now procure power through a competitive bidding process to get favourable tariff from generating companies, power exchanges, and bilateral agreements.

Railways, which procure power from distribution companies, spends about Rs 12,300 crore a year to purchase 17.5 billion units of electricity.

Besides, railways have also rolled out plans to set up 1,000 MW solar power plants at railway lands and rooftops of railway buildings with support from the Ministry of New and Renewable Energy over the next five years.