The Hindu Business Line : Ownership options for freight corridor

While the Railway Ministry wants the dedicated freight corridor project to be largely owned by the Railways and other public sector units, others feel it should be owned and executed by a private player to achieve the best efficiencies.

As the Indian Railways' (IR) freight corridor project gathers momentum with the Cabinet referring the matter to a Group of Ministers, there are several opinions on how the project should be managed and executed.

While the Railway Ministry wants the project to be significantly owned by the Railways and other public sector units, others feel it should be owned and executed by a private player to achieve the best efficiencies.

The Ministry has proposed that the project should be managed by a special purpose vehicle (SPV), in which Railways has a majority stake. The residual stake can be undertaken by major PSU users who would benefit from the project.

Cost of implementation

"The SPV model would ensure that the project is done on a fast-track basis and would have lower costs than IR," say Ministry officials. When the ownership lies with Railways and other PSUs, the cost of funds would be much lower — closer to sovereign debt, they say. However, those supporting increased private participation feel that the very point of being a Government entity would weaken the SPV's functioning.

"Procedures, limited powers and vigilance, contribute towards making project implementation one of the weakest areas of IR where cost and time overruns are routine," feels Mr Arun Prasad, former Managing Director, Ircon.

Voting for BOT

Mr Prasad argues that the project could be better implemented by a private player with much lower capex and recurring costs. The Government should invite bids for the entire project implementation on a build-operate-transfer basis, he says.

The land acquisition should be done by the Government, as the land and assets shall go back to the Government after 30 years, with bidders financing the entire project and competing by offering a minority share to the Government in equity or profits, feels Mr Prasad.

The new dedicated freight corridor (DFC) line should be allowed to compete with the IR system — this would result in higher quality of services, he argues, giving the example of the telecom and aviation sectors.

However, when presented this argument, Railway Board officials point out that the railway sector cannot be compared with the telecom or aviation sectors. "In Railways, there is a rail-wheel balance that needs to be maintained," they say.

The new corridor has to be wedged in 63,000 km of IR network. If the rolling stock used by the other system is not well coordinated with the present systems' feeder routes, the wheel (rolling stock) and rail-track mismatch would damage each other considerably, Railway officials argue.

Symbiotic relation

What is required is a symbiotic relationship, not a competing one, between the IR and the DFC, stress most of the Railway experts, adding that if the DFC were to start competing with the IR, attempting to grab the freight traffic, there would be chaos.

"Do you think the IR would let the competitive system grab all the profit-making freight business while running the loss-making passenger trains?" asks a top Ministry official. He pointed out that since all the feeder routes, loading, unloading for the DFC would be owned or managed by the IR, the latter could make it very difficult for its competition to operate.

The very objective of having a DFC is driven by the need to create more capacity — and not compete with the present system — so that freight traffic can be diverted to the new system.

Need for competition

"We definitely feel there should be competition to bring down the cost — but that should exist while raising finances and while procuring, amongst others," says a Ministry official. There are some other views as well. According to a senior Railway official: "In order to adopt the best practices, we should tie up with an international partner with relevant experience for a management contract for 4-5 years."

Says another Board official: "We should simply set up a dedicated project team. Let the team work further — on the business plan, execution, etc." If the IR was to run the DFC, the benefits would be distributed to a wider population — across freight customers and passengers. However, a private player would be concerned with retaining his own margins, said an official.

More Stories on : Railways | Infrastructure

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Modern vessel management system for Kochi port

Shippers pitch for better liner regulation

Sical Logistics combine gets LI for iron ore terminal project

Congestion charge stayed

Fastest container vessel

Ownership options for freight corridor

Runaway demand for iron ore rakes

Carrying coal to Punjab