Dedicated freight corridors of the Indian Railways will speed up economy

28 Oct

If one were to look for a symbol that encapsulates the idea of India, perhaps one that would make sense to everyone, it would be the Indian Railways. Stretching across the country, past fields, over rivers, through small towns and big ones, talking in many tongues, tasting different cuisines, churning lives together, the train is a mini India. A veritable modern caravan.

India’s growing population in search of jobs, education and the promise of better alternatives, needs more and faster trains. With the economy growing at an accelerated rate and industrial activity quickening pace, goods have to move in larger volumes. A burgeoning demand for additional trains, both passengers and freight, is posing a serious crisis for the Indian Railways, given its capacity to manage existing trains and to handle additional traffic in the coming years.

Let’s look at the Indian Railways story in the context of a fast growing economy, rising demography and the consequent relentless pace of mobility. At present, the Indian Railways runs approximately 12,000 passenger trains carrying over 23 million passengers per day connecting about 8,000 stations spread across the country. This amounts to moving the entire population of Australia. About 8,000 freight trains run daily, carrying about three million tonnes of freight.

The rail network of 65,000 route kilometres is more than one and half times the circumference of the earth. Indian Railways is in league with China, Russia and USA with an originating rail freight loading of one billion plus. Yet, the railways cater to only 20 per cent of the total passenger traffic and 35 per cent of the freight traffic moving across the country. Nonetheless, there is always a wait list for tickets and shortage of wagons for moving goods on an as-is-where-is basis, aggravated during peak demand seasons such as festivals.

The obvious solution would be to introduce more trains as and when required. But this is too simplistic. All trains use the same tracks. The constraint is the maximum number of trains one can run at a particular speed. In the technical language of the railways, this is called line capacity. In the budget speech, the railway minister said that 65 per cent of the rail route is saturated, i.e., it is carrying more traffic than it should, if speeds are to be maintained safely at a particular level. Any additional train would severely impact the speeds of all trains. So, while the long waiting list of harassed passengers indicates a pressing need for new trains and there is an equal need for additional freight trains, the capacity to run them on the existing routes would affect speeds of all trains.

Priority to passenger trains delays goods movement adversely impacting both industry and the railways.Those anxious about deadline delivery of their consignments prefer moving goods by road, even though this is more expensive. As such, the share of freight carried by railways has declined from 86 per cent in 1950-51 to 36 per cent by 2011-12, even the though total freight traffic has grown, exponentially. In most countries, about 50 per cent of freight moves through the railway network.

To reverse this trend, the Indian Railways has decided to build dedicated freight lines called dedicated freight corridors (DFC) so as to segregate passenger trains from freight trains, thus generating sufficient capacity to meet increases both for passenger and freight trains. Six routes have been identified as dedicated freight corridors. Two of these corridors, approximately 2,800 km in length connecting Delhi to Mumbai and Delhi to Kolkata and costing nearly Rs 80,000 crore are expected to be ready and operational by 2018. All freight traffic running on these existing routes, say 60 trains each way daily, would get diverted to these corridors, releasing capacity for running more and faster passenger carrying trains. With these dedicated corridors, a freight train leaving Delhi in the evening can reach Mumbai the following morning, in about the same time as a Delhi-Mumbai Rajdhani express, as compared to several days that it takes now.

The average speed of freight trains would accelerate from a frustrating 25 kmph to 70 kmph, with the maximum speed going up to 100 kmph and more. Faster and timely movement of commodities would reduce inventory costs to the customer. An added advantage would be in introducing roll on roll off or RORO services, that implies carrying a truck on to a wagon rather than loading/unloading goods a truck at originating and terminating points. This concept has already been tried out internationally, and in India, it is being done on the Konkan Railway. This would have a significant impact on reducing handling costs for the trade. It would also reduce the uncertainties of labour dependencies and consequent inordinate delays, often at critical times — like moving food grains.

The new tracks being laid for the freight corridor can handle heavier trains. This is expected to more than double the freight carrying capacity of the trains from the current 6,000 tonnes to 13,000 tonnes. The western corridor would primarily cater to containerised traffic, mostly exports and imports, while the eastern corridor would be used mainly for moving coal from mines in east India to power plants in the north. Double stack container trains are also under consideration, thereby increasing the handling capacity of the railways and also decongesting ports when consignments arrive.

The construction of the western and eastern corridors alone would generate a demand for 2.7 million tonnes of cement and 1.6 million tonnes of steel, boosting these two infrastructure industries. It would also create demand for electric equipment and cables, signalling equipment, new locomotives and rolling stock, stimulating manufacturing. Some of the Japanese companies have committed to make this equipment in India. Employment would be generated with more than a thousands jobs coming up in the construction of the corridor and facilities along the corridor, including logistics parks to handle cargo and townships. The dedicated freight corridors would thus be a key engine for economic growth. It would contribute to the Make in India programme by enabling business, as well as to the 100 smart cities that the government plans to build, as some of these would be along the freight corridor.

Moving most freight trains to the new corridor would also improve the quality of life. By reducing congestion on the main tracks, it would enable passenger trains to move faster. Increased rail capacity for passengers and freights would reduce truck congestion on roads. This alone would greatly contribute to both vehicular efficiency on the roads and consequently significant reduction of air pollution. Transportation by rail is six times more eco-friendly than by road and reduces dependence on imported fuel specially if it is on electric traction. Highly fuel-efficient, the energy consumption of trains is one third less than private cars and five times less than airplanes. The rail system has a 30 per cent less land requirement in comparison to expressways for the same carrying capacity. The nation gains a green economy and a healthy environment if traffic, specially freight, is diverted from road to rail.

There are, however, challenges. The major hurdle is arranging resources to meet the cost of constructing dedicated corridors, about 8,000-plus km and to have the institutional flexibility and efficiency of decision making and execution to avoid time and cost over runs and to respond in ways that match national needs with global opportunities, without being bogged down by archaic governance practices. Such a situation calls for innovative thinking.

The institutional arrangement for dedicated freight corridors provides a platform for innovation. Segregating infrastructure from the operational system is like a dream come true for those who have involved in the heated debates on this subject for several years now. Recently, the Bibek Debroy committee also emphasised the need to separate infrastructure development from operation management. Dedicated freight corridors are being built, managed and operated by a separate entity called Dedicated Freight Corridor Corporation of India (DFCCIL) to ensure focused attention for such a large project. Though, technically, a public sector undertaking under the ministry of railways, the dedicated freight corridor corporation of India is independent of the other project executing agencies of the Indian Railways and hence has its own management. This is similar to the container corporation (CONCOR) which has been disinvested from time to time and with good results. DFCCIL and the Indian Railway thus remain two distinct through complementing management entities.

DFCCIL is a government of India enterprise, distinct from Indian Railway in terms of its management, finance and operation. But in so far as multilateral funding is concerned, the loans to it from the World Bank and the Japan International Cooperation Agency (JICA), Japan, would be routed through the Indian Railways. The responsibility for repaying the loan lies with DFCCIL. The Indian Railway’s portion of funding is borne on the general exchequer through the ministry of railway. Thus, we have an institutional arrangement for freight management which is autonomous, dedicated with ring-fenced financial structuring for building a major infrastructure project with government support. We need to leverage this innovative idea of building institutions on the peripheries of the government that can become self-sustaining while providing value to the economy. This is what was done in the US by private players who built dedicated freight lines, privately owned. It can also play a lead role in transforming the railways from a loss making operation to an efficient and profitable venture.

Lets now look at financing. Building infrastructure on such a massive scale requires huge funds and for a long gestation period. Obviously, these would not be easily accessible. This is where ingenuity is needed rather than a begging bowl. With the two corridors nearing completion and revenue streams appearing on the horizon, this should be an ideal time to look ahead and plan on how to leverage this experience for future corridors.

Presently, railway projects are financed by the railway ministry generating surplus from its operations, some borrowing from the open market and support from the general exchequer. Resource dependency on the government would eventually, constrain project execution of this magnitude and may also compromise financial support to other sectors of the economy. Alternative financing methods with low/zero burden on trade, need to be examined. Whatever they gain, should be in terms of value of service provided.

Today, Indian Railways’ freight earnings not only subsidise passenger costs but are also utilised to meet other obligations of maintenance of the network, passenger amenities and building new tracks in uncharted territories where the returns on investment are low. This leaves little fund for building more segregated routes. A robust and self-sustaining financial model is critical to large, investment-intensive, public services on a national scale. The revenues earned by the dedicated freight corporation should be its major stream of funding. If, for example, one needs to spend Rs 10 crore per km to build the dedicated route and one can generate four times the amount from the traffic moving over it, then the money so generated should be earmarked for laying more such lines.

These are approximately the present day financials for the dedicated freight corridors. Raising such level of funds would require market friendly financial strategies that attract investments with assured returns to investors. This appears possible, in the emerging scenario. Additional financial streams/ sweeteners may be developed by way of terminals like Multi-modal Logistic Parks (MMLP) and intermediates with inland waterway authority, etc. Commercial utilisation of land, whose ownership is yet with the railways, could also be explored. It should be simple to build a financial model for leveraging this revenue to finance future corridors. A scheme of amortising future cash-flows also needs to be examined.

It is possible to have revenues arising from one stream, say Delhi-Mumbai, put under a separate head of account in the government budget so that the profits are obvious to the investor and indicate the level of investment made. Presently, no such mechanism exists since all funds go into the consolidated fund of India. Year-on-year income/expenditure streams are also not clearly delineated. For an investor this is not attractive at all. Since the forecast over 10 to 15 years has been accounted for and the outflow for both maintenance and repayment would be low in the initial years, the revenues should be quite healthy for attracting private investors through various schemes like investor public offering, raising money through floating shares, etc. Similarly, utilising the private investment window of multilateral agencies may also be tapped. Freight corridors should be money spinners rather than money guzzlers that ministries tend to make it.

The present system suffers from many risks which have to be ironed out before the present system starts commercial operation. An investor would need to know the risks involved in putting his money of the scale of Rs 80,000 crore. These need to be clearly spelt out and hence all issues need to be resolved beforehand. Similarly, the costs need to be pruned down with the experience gained. The major challenge would be time and cost of execution, a proper assessment of cash flows, risk mitigation and financial structuring. In the emerging scenario, these appear doable. It is believed that wagon design for higher capacity has already been approved. Similarly, identified feeder routes are nearing upgradation. This should go a long way in mitigating risks associated with the project. If commercial operations are possible now, why defer them to a future?

There is some discussion afoot of making DFCCIL independent of the ministry of railway. While this should be an end objective, it might be premature at the initial stage. Land acquisition, if required, would be easier if done by the Indian Railways as government ministry and also be exempt from many restrictive conditions of the new land acquisition act under the “linear growth” clause. The surplus land with Indian Railways can also be utilised as is being done in the case of the two corridors under construction. The investment being undertaken in constructing additional lines for generating capacity can form part of the dedicated network. For example, the third line being constructed between Itarsi and Bina can form part of the dedicated Delhi to Chennai route.

The expenditure incurred should be treated as Indian Railway’s equity so that government retains majority shareholding as part of its rules. This would not only lower costs but also reduce land acquisition requirement thus reducing time overruns substantially. Indian Railways’ investment should be only in the land that is utilised for building the DFC so that its funds/cash flows are utilised for alternate uses like building routes leading to these dedicated routes, investment in passenger amenities and other IT based systems for passengers.

This is the first time that the government of India is building a parallel network distinct from the Indian Railways. It is the first time ownership of infrastructure is distinct from the operator. It is the first time that this infrastructure is built, managed and operated by an entity distinct from Indian Railways. It is also the first time that financing of such an infrastructure and the receivables are separate from the consolidated fund of India. Such firsts are rare opportunities. They should be leveraged for dedicating a major rail venture to nation building.

(The writer is an officer of the Indian RailwayTraffic Service. He retired recently, as member, Traffic, Railway Board)

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Posted by on October 28, 2015 in Uncategorized


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