Electricity generators of Gujarat, Punjab and Tamil Nadu end up compensating most of the passenger subsidy of the Railways, Brookings India has said in a report.

Users of coal, a commodity which contributes maximum to the Railway earnings, also end up paying the maximum amount to compensate losses generated by the national transporter. The Railways’ business model runs on overcharging its freight customer and subsidising the passenger. To fulfil the government’s vision of connecting the country, the Railways is not allocated any budgetary support for passengers, in the form of subsidies. Any support from the government is only to be used for expansion, notes the report. Thus, the Railways ends up cross-subsidising passengers by overcharging freight.

Detailing about coal, the report notes that the tariffs for the fuel have gone up at a sharper rate than the wholesale price index. Coal, the major input for State power houses, is moved primarily by rail from the mines.

Freight overcharge

The Railways today overcharges coal freight by about 31 per cent to offset its “social obligation” or coaching losses, says the study. Due to this higher price, in fiscal 2017, the cost of power went up by an average of 10 paisa per kiloWatthour (kWh) from coal to thermal power plants (₹10,800 crore) on the basis of all electricity generated in India.

“Gujarat, Punjab, Tamil Nadu that are far from coal mines, and therefore pay more than others, will contribute proportionately more to recover the coaching loss — the passenger subsidy. This overpayment by coal-based power applies to all coal generation in States like Punjab as all their coal comes via Railways,” said the report titled ‘Indian Railways and coal, an unsustainable interdependency’. “Coal contributes 44 per cent of the revenue and even a higher share to Railways’ profitability,” it said. On an average, rail accounts for over 85 per cent of the cost for transporting coal to thermal power plants. However, a large number of power plants are located at pithead, and do not use the rail mode of transportation.

Renewable energy

In this context, the study said that the advent and wider adoption of newer technology will move coal loading away from rail. Growing renewable energy (RE) will displace coal generation, but the share of RE will disproportionately grow in States with high solar and wind resources — coincidently those far from coal mines.

For distant locations, the rise of high-voltage DC technologies has meant it can be cheaper and more efficient to send power over the wire than transport coal by Railways.