The Hindu Business Line : Rlys favours Govt-backed freight corridor project

Cost difference
The Rs 27,000-crore project would have a landed cost of almost Rs 70,000 crore, including interest payments, spread over 20 years, according to senior Railway Board officials.
However, if the same project was done by a private player, it would need a mammoth Rs 1.12 lakh crore spread over 20 years, they said

New Delhi , July 8

Internal calculations made by the Railway Board show that the landed cost of the dedicated freight corridor project would work out to be much cheaper if it is backed by the Government and remains within the public sector fold instead of private ownership.

"Based on our calculations, the Rs 27,000-crore project — if we were to finish it within five years — would have a landed cost of almost Rs 70,000 crore, including interest payments, spread over 20 years," said senior Railway Board officials.

However, if the same project was done by a private player who would heavily bank on debts, the project would need a mammoth Rs 1.12 lakh crore spread over 20 years, they said.

These cost differences are primarily based on the fact that cost of funds for any private organisation is going to be much higher than that for Indian Railways (IR), as Railways enjoys sovereign status. Moreover, IR plans to use its surplus funds to put in a higher equity element. On the other hand, any private player would build in high margins for the project.

Asked why Railways is not using its funds to complete its unfinished projects valued at Rs 50,000 crore, the official pointed out, "A lot of these lines would not give us enough returns. Had we been directing our funds to these lines, we would not have generated about Rs 11,000 crore surplus.

"The need for us is to direct these funds to those routes that have maximum earning capacity — the freight corridor — and generate further surplus, which can be ploughed back into relatively uneconomic lines."

For the calculations under the Government-backed model, Railways has put in an equity element of about Rs 19,000 crore and has calculated the cost of capital at a mix of 9 per cent to 13 per cent range. "Even if we take funds from a multilateral agency, the final cost of borrowing works out to 9-10 per cent including the insurance, exchange rate fluctuation, hedging, amongst others," said an official adding that they have already spoken to several bankers on the issue.

The project cost would be controlled by ensuring maximum competition while raising funds and handing out engineering procurement contracts, said the official.

Keeping the revenue generation constant, payback period for the Government would be much less.

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