Govt may task aviation regulator to fix railway passenger fares, freight rates

P Manoj Mumbai | Updated on July 29, 2020 Published on July 29, 2020

Move follows delay in operationalising of the Railway Development Authority

Aviation regulator Airports Economic Regulatory Authority (AERA) could be tasked with fixing passenger fares and freight rates for railways to attract private investments for expanding and upgrading infrastructure.

The move follows delay in operationalising the independent regulator Railway Development Authority (RDA), which is one of the key reforms needed for promoting private sector participation in railways.

By 2025, 30 per cent of net cargo volumes, 500 passenger trains and 30 per cent of 750 stations are targetted to be privatised. Procuring rolling stock from the private sector is also being pursued.

For enhanced private participation in railways, it is crucial to shift the regulatory responsibility of tariff fixation and consumer protection from the Ministry of Railways to an independent regulator for railways, a government official said.

The government had approved setting up of Railway Development Authority (RDA). However, the RDA is yet to become operational.

“The delay in setting up of RDA also opens up avenue for other options like setting up a multi-sectoral regulator by allocating railway regulatory functions to an existing transport sector regulator such as the AERA because the objectives of independent regulation are similar across sectors,” the official said.

The regulator will help provide a level-playing field for private players in the sector by making decisions on pricing of services, consumer interests, generating revenue and competition. This will help attract investments and improve services in railways, he said.

Operational cost

For ascertaining the usage cost of track and other related infrastructure provided by the railways, it is essential to segregate the financial accounts under track and related infrastructure development and maintenance, and fleet management and regular operations. Cost allocation should be worked out in a manner so as not to discriminate against private operators, he said.

The railways is looking to follow the best practices in public-private-partnership (PPP) projects from other sectors such as highways and airports, including favourable exit and substitution clauses, equitable risk sharing and well-defined obligations of the concessioning/contracting authority and concessionaire.

The Commissioning of Dedicated Freight Corridor (DFC) is also expected to clear opportunities for the private sector in areas such as development of private freight terminals, rail-based logistics parks and private rail sidings.

This can also create a market for private rolling-stock operating companies. “A conducive policy environment should be created to foster private sector participation and monetise the DFC assets once completed,” the official said.

He added that the railways should distance itself from non-remunerative, non-core activities such as running a police force, schools and hospitals. These functions should be outsourced to private entities.

There is also a need to monetise surplus land parcels available with the Indian Railways by providing them on long-term lease to fund the station re-development programme, he added.

Subsidised fares

The high operating ratio of over 98 per cent has constrained effective operations besides restricting investments in capacity augmentation and modernisation. The main reason for poor operating ratio is that the Railways have been priced out in the freight segment and passenger fares are highly subsidised.

Freight rates have risen 91 per cent over the past decade compared with a 28 per cent increase in passenger rates. Due to this, railways has been steadily losing freight market share to road transport. This, coupled with an estimated increase in permitted axle load of commercial vehicles by 25 per cent, may lead to further reduction in modal share of railways in freight transport, the official said.

The high operating ratio has created a huge investment gap for capacity expansion. Besides, the Indian Railways has been weighed down by “ever-mounting debt”. The debt servicing costs are set to rise at a much faster rate as the repayment obligations related to DFC and High-Speed Rail (HSR) network kick in. High debt servicing costs would put further strain on railway finances, he said, underlining the need to attract private funds for infrastructure augmentation.

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Published on July 29, 2020
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