Following demands by many iron ore and coal mining firms, the Indian Railways has finalised a policy that will allow them to invest in building last mile rail links.

This is different from the rail sidings policy primarily because the Railways allows for some extent of capital cost recovery to the investors through a surcharge.

Firms that have been seeking a provision on similar lines include Adani Group, Orissa Industrial Infrastructure Development Corporation and subsidiaries of Coal India.

The policy is over 20 km rail links only. This implies that the minimum cost of each project would be Rs 100-140 crore (excluding the price of land) because the cost of building one km of rail link is about Rs 5-7 crore.

Broadly, the policy states that companies will have to fund construction of rail link along with land acquisition costs. But, upon construction, the ownership, operation and maintenance will be with the Indian Railways.

Meanwhile, on the revenue side, the entire freight earnings will accrue to the Railways.

To recover the amount spent by the mining firm(s), the Railways has provided for a “surcharge” provision through which the firms' investments can be recovered.

Companies can recover the costs through development charges from various users of the line, or it can also be compensated by the Railways through levy of surcharge on customers till the applicant recovers the cost of original investment. The surcharge will be recovered over 10-25 year period.

The policy has two models: capital cost model and the special purpose vehicle (SPV) model for flexibility. While the capital cost model is relevant when there are two players, the SPV model is meant to take care of a situation where there are a large number of players. This policy is termed as the R2CI policy (rail connectivity policy for coal and iron ore mines).

mamuni@thehindu.co.in

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