The Hindu Business Line : Private participation in Railways

The Railways needs to cut down the extent of cross-subsidisation across passenger and freight segment. But, how much a regulator can do as long as the Railways continue to be politicised?

THE Railways announcing its intention to allow private players to offer containerised services is likely to bring back to the fore the issue of having a tariff regulator. The other issue that could compel a discussion on this aspect is the increased cross-subsidisation across passenger and freight fares, with the Railway Budget not raising the highly subsidised fares for the third consecutive year.

Increased private participation

Many public-private partnerships — that include Pipavav Railway Corporation Ltd (PRCL), Kutch Railway Company Ltd, and Hassan-Mangalore Rail Development Company — have already been created for laying the rail network for port connectivity. While PRCL has been given the go-ahead to start containerised operations, many others are expected to seek permission for the same.

According to a former senior Railway Ministry official, who has worked on many Railway-related assignments in India and abroad, "To start with, the Railway Board had regulatory powers — it was initially formed to function like a regulator."

Moreover, a regulator is needed to provide a level-playing field when there are many players. But there are hardly any ``different players'', as most of the tracks being laid have investments from the Railways as well. Also, not that the Railway Ministry is charging different haulage or usage charges from Container Corporation of India Ltd (Concor) and PRCL.

However, in this context, PRCL officials point out that the field is not "completely level". Though the haulage charges are the same, PRCL has not been allowed to move containerised services on all routes as Concor — only some 20-odd routes have been specified for PRCL. Similarly, PRCL has been asked to pay an annual licence charge of two per cent, which is not levied on Concor.

According to another top Ministry official, "To start with, the Railways has just opened up containerised rail traffic from ports to hinterland. Over time, as other Railway services are being opened up, one may need a regulator. As of now, it is pre-mature to talk about the need for a regulator."

Reduce cross-subsidisation

Most Ministry officials agree that the Railways needs to cut down the extent of cross-subsidisation across passenger and freight segment. But their concern is how much a regulator can do as long as the Railways continue to be politicised. In the present system, what if a regulator recommends and the Government and/or Parliament rejects it? "The core of the issue is to depoliticise the pricing and investment policy," feels Mr S. K. Khanna, former Chairman, Railway Claims Tribunal. There is a Railway Rates Tribunal to ensure that that no two similar users are unfairly charged.

"In this age of coalition governments, it is difficult to bring in passenger fare hikes. Also, how many uneconomic branch-lines have the previous governments been able to close down? In 2003-04 — the year for which latest data are available — there were 112 uneconomic branch-lines, with the loss amounting to Rs 410 crore," points out Mr Khanna. The original investment on these lines was "of the order of Rs 330 crore, and in just one fiscal, the loss is Rs 410 crore," he added.

The Railways assesses the net social service obligation (uneconomic propositions undertaken by the Railways for the "larger social interest") in 2003-04 at an estimated Rs 3,839.21 crore.

This excludes the staff welfare cost of Rs 1276.93 crore and the law and order cost of Rs 775.59 crore. Social service obligation mainly includes essential commodities carried below-cost, passenger and other coaching services, operation of uneconomic branch-lines, and new lines opened for traffic during the past 15 years.

However, some feel that the presence of a regulator is a must. Asks the IDFC's transport sector head, Mr Athar Shahab: "To what extent and why should a freight user pay for the capital expenditure incurred on unproductive projects."

"The infructuous investments, recruitment policy, non-core activities — at least an interim regulatory body is required to build in accountability," he says, admitting that the "regulator has to have enough teeth to ensure politics does not prevail over economics".

Need for transparent costing data

One of the issues on which a regulator can be of help is to find out the actual cost of service provision. If the regulator could define "the cost-plus exact mark up" band for provision of rail service, there would be some logic behind the various tariff classification.

Another issue being debated is, "Where there is a consumer element of service, there should be a regulator," points out the former Ministry official.

A few basic concerns need to be addressed first, say experts. What exactly will be the role of the regulator? Will it just be another advisory body with no teeth? If finding costs is its role, of what help will that be, they ask.

"Bundling and unbundling are cycles of political management. The Railways started with private players, with unbundled, defined costs; was subsequently bundled and now appears to be moving towards unbundling — albeit at a slow pace. The British Railway, which unbundled very fast, is now working out ways to integrate," sums up an official.

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