Coal India to buy high-capacity wagons for ₹515 cr

Pratim Ranjan Bose Kolkata | Updated on January 23, 2018 Published on May 22, 2015

Likely to procure at least 1,700 wagons

The Coal India Board has approved a ₹515-crore plan to procure high-capacity box wagons of 80.5 tonnes each. The decision was taken last week.

The cost of such wagons, with 20 per cent higher carrying capacity, is unknown as India is yet to start manufacturing them. Based on an initial cost assessment, CIL expects to procure at least 1,700 wagons. This is equivalent to 28-29 rakes (freight trains of 59 wagons each).

To ensure intensive utilisation of own rakes and prevent diversion of the same by the railways to carry other cargo, CIL plans to deploy such freight trains in close-circuit, short-distance routes in Odisha and Chhattisgarh.

Coalfields in both States are currently under-served by the railways. As against the capacity to load 80 rakes a day from large mines in Odisha, CIL is currently supplied with 63 rakes a day.

Viability issues

Deployment of own rolling stock by CIL will help free railway capacity. But the implementation of the project is not free from concerns.

First and foremost, the railways has to ensure that the freed capacity will be used only for carrying CIL coal.

More importantly, CIL’s investment in rolling stock will end up helping the railways earn higher freight revenue without any investments.

The State-owned miner will merely gain public appreciation for supplying more coal to consumers impacting its own bottom line.

Financial viability may be achieved if the railways compensates CIL for finance cost by offering a rebate on freight and maintain the wagons at own cost.

The scene will be clear once the ministries for coal and railways enter an agreement underlining detailed terms and conditions of the project.

Viability issues also dog the proposal to build three short-distance (50-180 km each) freight corridors in Odisha, Chhattisgarh and Jharkhand in a joint venture between CIL (64 per cent), the Railways (26 per cent) and the State government (10 per cent).

The State contribution is limited in offering land. The contribution of railways is also largely limited to technical support, meaning the cash requirement will be met by CIL.

The special purpose vehicles are expected to help evacuate coal from CIL mines. But it would help the railways earn huge revenues from long-distance traffic, through integration of track network.

As things stand now, the railways is agreeable to share revenues (with SPV), apportioned to the track length laid by the SPV. And, that may make the projects unviable.

While detailed project reports are yet to be ready, initial estimates suggest CIL’s return from such huge investments may be way lower than the requisite 12 per cent IRR (internal rate of return).

This is a benchmark followed by all State-owned companies in taking investment decisions.

Published on May 22, 2015
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