Financial Daily from THE HINDU group of publications
Monday, May 09, 2005
Financial Daily from THE HINDU group of publications Monday, May 09, 2005 |
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Logistics
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Infrastructure Industry & Economy - Economy Logistics, the hurdle to tap eastern region's resources Indrani Dutta
However, the report also identifies high freight cost and capacity constraints as major hurdles which must be overcome if the potentials are to be exploited fully to yield concrete results. The country's inland freight costs, especially railway freight, according to the report, are much higher than those in the other mineral-rich countries such as Brazil, Australia, and South Africa, the reports argues adding that the problem gets compounded by inadequate capacity of both rolling stock and route bandwidth. Theoretically, India's iron ore exports to China, because of physical proximity of the two countries, should be more competitive than those of South Africa and Brazil; however, high inland freight costs neutralise India's locational advantage. Making a comparison, the report points out that while mining processing and royalty-wise India is somewhat comparable to South Africa and, to a lesser degree to Brazil and Australia, the inland freight costs and the port handling costs, totalling $10 per tonne, make all the difference, leaving India way behind South Africa ($4.2), and Brazil and Australia ($2.2 for both). But, then, high cost is just one major problem, the inadequate facility for evacuation being the other. To overcome the evacuation problem, the report emphasises construction of dedicated infrastructure through public-private partnerships in railways, ports and infrastructure. Pitching for SPVs (special purpose vehicles), the report refers to the successful implementation of the Pipavav project saying that depending on the cargo support, railway infrastructure, built and operated through such initiatives, can reduce railway freight costs by up to 50 per cent from current levels. In the eastern States two such corridors which, according to the report, can be developed to boost the iron ore and steel sectors are Bhilai-Rowghat-Vizag and the Chiria-Banspani-Dhamra/Paradip. The report is confident of the economic viability of the corridors depending on the assured traffic volumes. The CII-Mckinsey team feels that the SPVs could be formed with the participation of several potential investors who would be direct beneficiaries of such a project. The list of potential investors for setting up SPVs with the likely benefits in parentheses are given below: Ports trusts (guaranteed traffic volume), logistics companies (revenue from track operation and maintenance), user companies — metals /minerals (lower freight costs, improved availability of wagons, and certainty in lead times), Indian Railways (private investment in rail infrastructure would reduce pressure on its limited financial resources) and State governments (growth in GDP, employment and tax revenues through investments in the metals and the minerals sector). The report says it will be important for the state governments to ensure the viability of the infrastructure to be developed by the SPVs by providing guarantees that will cover the regulatory risks associated with the project. State governments should particularly agree to fund the losses that might be incurred by the SPVs due to delays in approvals and clearances. Sectoral players who plan to use the infrastructure to be developed by the SPVs should provide traffic guarantees to cover the commercial risk of the project, the report suggests.
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