Oil firms set to gobble up 40% of Railways fare hike benefit

Mamuni Das
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The Railways is yet to take a call on whether it will pass on the hike in diesel price to its customers, and if yes, to what extent.
The Railways is yet to take a call on whether it will pass on the hike in diesel price to its customers, and if yes, to what extent.

About 40 per cent of the Railways’ incremental earnings, that were to accrue from the recently announced passenger fare hike, will evaporate because of the hike in diesel price that came into on Thursday night.

The annual fuel bill of the Railways, already at Rs 8,500 crore, is expected to go up by Rs 2,600 crore.

The Railways was expecting to garner incremental earnings of Rs 6,600 crore a year due to the passenger fare hike which will be implemented from January 21.

The Government brought in a dual price regime for diesel sales from January 18, where the subsidy element was withdrawn for bulk consumers of oil marketing firms. The Indian Railways is the single largest bulk high-speed diesel consumer.

Bulk consumers are defined as those who take diesel supplies from the depots of oil marketing companies.

“We are yet to take a call on whether the Railways will pass on this hike to its customers, and if so, to what extent. But it is a major hike and difficult to ignore,” said a Railways source.


In a related move, Railway Board Chairman Vinay Mittal told Business Line earlier this week that the proposed tariff regulator will take a call on introducing the fuel adjustment component (FAC) on rail tariffs. The FAC, introduced as part of the Budget last year, suggests linking rail tariffs with fuel movements.

In effect, this would trigger automatic revisions in sync with fuel price movement.


Meanwhile, road transportation of goods is unlikely to get pricier given the oversupply of trucks. Most of the trucks buy diesel from retail outlets of oil firms.

“The small diesel price hike could not be passed on by truckers and transporters in the backdrop of oversupply of trucks. The truck freight charges remain unchanged in a dull economic scenario and oversupply of trucks,” the Indian Foundation of Transport Research and Training (IFTRT), a research body, said. But, road transporters are unhappy with the Government’s move to increase diesel fares in small doses over a longer duration for the retail segment. The All India Motor Transport Congress, a truckers union, has criticised the move.

“Frequent revisions will lead to multiple negotiations between customers and logistics firms,” explained Vineet Kanaujia, Vice-President, Marketing, SafeExpress.

“The contracts are usually such that the freight rate increases are triggered on fuel hikes of over Re 1,” said S.P. Singh, Senior Fellow, IFTRT.

(This article was published on January 18, 2013)
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