Need to Revitalise PPPs: IR’s initiatives for improving performance

IR’s initiatives for improving performance

In the past few years, the railway sector has undoubtedly attracted considerable government attention. Several noteworthy initiatives and policies have been introduced to transform the sector. Steps such as track modernisation, 100 per cent railway electrification, broad gauge conversion, and initiatives towards capacity enhancement (including the development of dedicated freight corridor [DFC] and port connectivity projects) have been taken up. Further, policies have been rationalised in favour of private players to increase their participation in the sector. Further, schemes such as the Generalised Purpose Wagon Investment Scheme (GPWIS) and the private container terminal operator (CTO) scheme have been introduced. The financing scenario too has improved through increased budgetary support resulting in higher investments in the sector. However, there is still a long way to go to increase the modal share of railways in the overall freight transportation mix. To this end, attention towards areas such as setting up a discriminatory pricing mechanism, absence of a regulatory authority, underutilisation of assets, and lack of door-to-door logistics services is required.

At India Infrastructure Forum 2019, a panel of experts discussed the experience with regard to capacity creation, need for a railway regulator, potential for deregulation, unresolved issues and the way forward. Excerpts…

IR’s performance

During 2018-19, Indian Railways (IR) performed quite well in verticals such as track modernisation, electrification and freight traffic. About 2,300 km of new lines were laid and about 3,755 km (as of March 2019) of lines have been electrified against an electrification target of 6,000 km. While, the achievement fell short of the target, there has been a quantum jump in electrification as compared to a few years ago when only about 1,000 km of lines were electrified.

Freight traffic has increased – from 1,050.18 million tonnes (mt) in 2013-14 to 1,159.57 mt in 2017-18. Further, as of February 2019, total freight traffic for 2018-19 stood at 1,101.79 mt. This increase has largely addressed the issues of movement of coal and other commodities such as cement, fertilisers and containers.

Apart from this, there has been an increase in project-related activity as big-ticket capacity enhancement projects have been initiated. Examples of such projects are the eastern and western DFCs, which entail the development of about 3,000 km of double-line tracks at a cost of about Rs 810 billion. The corridors will span nine states and 62 districts creating a huge line capacity. The corridors boast of innovative features such as stations every 40 km (less stoppage), automated signalling, radio communication, and average speeds of 65-70 kmph for freight trains, thereby enabling assured delivery of goods. Currently, about 690 km of the sections under the eastern and western DFCs have been completed. The capacity thus created will enable the running of 120 trains, including double-stack dwarf containers and long-haul trains, with a carrying capacity of about 13,000 tonnes. It is estimated that about 400 mt of IR traffic will move on the DFCs once they are completed (by 2022). Other than this, port connectivity projects and efforts towards indigenous development of rolling stock have been initiated.

Meanwhile, funding, which was once a weak point in project implementation, has been strengthened though increased budgetary support. The share of extra-budgetary resources in investments, which hovered around 19 per cent of the total budgetary allocation in the past two years, has surged to about 57 per cent. Further, a large part of the investments is sourced through the Life Insurance Corporation of India and the Indian Railway Finance Corporation. With a supportive financing climate, the overall investment in the sector also increased substantially to around Rs 1.38 trillion in 2018-19. IR is targeting an expenditure of about Rs 1.58 trillion during 2019-20. About 35 per cent of this investment will be incurred for developing fixed infrastructure and about 25 per cent for the procurement of rolling stock. The remaining will be invested in safety improvements and other aspects of IR.

Improving private participation

In the past three to four years, there has been increased private sector participation with the introduction of encouraging policies and initiatives. Segments that were earlier the prerogative of IR have been opened up for private investment. For instance, in April 2018, the GPWIS was launched to allow private investments in general-purpose wagons and in railcars that can move multiple commodities, including coal, without the need for any special approval. In return, IR charges a terminal access charge from operators.

Another initiative is granting non-discriminatory access to private operators to haul wagons on DFCs. Earlier, in 2015, freight terminals were opened for private sector investment and private players were given licences to act as CTOs. Besides, the implementation of the station redevelopment programme and development of solar power projects for railways have seen increased contribution of private players.

In December 2018, in a bid to enhance participation by CTOs, the Ministry of Railways offered a discount of 25 per cent on the extant haulage rate per twenty-foot equivalent unit on the transport of empty containers and empty flat containers.

Recommendations and the way forward

The experts at the Forum collectively echoed the need for more public-private partnerships in the sector. The urgent need for a regulator was also highlighted. The initiatives by IR and the investments towards infrastructure development are laudable but there is still a long way to go. Today, IR carries only about 35 per cent of the total freight traffic. This should ideally be closer to 50-60 per cent. Therefore, the investment target set by IR for 2019-20 is not enough if it has to grow at this pace.

Another aspect is the pricing structure for freight movement. IR’s freight per tonne km is one of the highest in the world, and this needs to be rationalised. Also, private operators are charged a higher haulage for moving bulk commodities on tracks owned by IR and for using terminals owned by Container Corporation of India Limited as compared to other containerised cargo. As a result, the scheme for the participation of private players as CTOs has failed to bear fruit. To improve the situation, IR needs to look at the pricing structure not as a commercial organisation focusing on cost-plus contracts but as a logistics provider aiming to provide door-to-door logistics services. For this to happen, strong political will and charging customers (instead of operators) are required.

Moreover, full asset utilisation has to be ensured to incentivise private players to make investments in various verticals. Actual demand has to be analysed before taking up capacity enhancement measures. For instance, there is significant potential for freight movement from the eastern ports of Dhamra and Paradip for which rail connectivity projects can be taken up through investments from private players.

The DFCs, which are expected to be the biggest enablers for enhancing freight revenue, will be successful only if discriminatory prices for on-time delivery of goods are not charged. This follows from an earlier assured transit scheme of IR under which an additional 10 per cent surcharge had to be paid for a fixed time for delivery of containers. While the common belief was that exporters would like to pay a higher amount and export cargo would increase, this was not the case. The same holds true for DFCs. To keep a check on Dedicated Freight Corridor Corporation of India Limited’s (DFCCIL) pricing structure for both IR and private operators, a regulatory authority needs to be set up.

Finally, there is a need to look at the bigger picture for achieving the goal of increasing the modal share of rail freight transport to 45 per cent by 2022. For this, private players should be looked at not as competitors but as partners possessing enhanced innovation capability.