New Dynamics

DFC to bring in a shift in freight management

The development of separately managed dedicated freight corridors (DFCs) is gre­at news for rail freight. However, they ne­ed to complement the existing Indian Railways (IR) network.

IR has been constantly facing capacity constraints. In 2014, the Natio­nal Transport De­velopment Committee stress­ed that the railways’ freight business had been constrain­ed by sub-optimal investments to address the issue of inadequate track capacity and terminal detentions. Freight movement has further been affected by the prioritisation of passenger trains.

Primarily due to capacity constraints, the na­tional carrier prioritises bulk commodities that can be moved in large volumes in trainloa­ds. Consequently, the only option to transport non-bulk commodities is via trucks. This has precipitated a steep decline in the share of rail in freight movement, from 35 per cent in 2005 to around 26 per cent at present.

The DFCs were envisaged to resolve this challenge by doubling the capacity on high-den­sity rail traffic routes. These corridors provide de­dicated tracks for freight movement, leading to increased train speeds, heavier and longer trains, guaranteed delivery times, am­o­ng other benefits. Apart from generating higher capacity for freight trains, DFCs will help IR use the re­leased capacity on existing routes to in­tro­duce ad­ditional passenger trains to meet intercity tra­vel demand. However, despite being appro­ved in 2006, the western (Dadri-Mumbai) and eastern DFCs (Ludhiana-Dankuni) faced persistent de­lays due to land acquisition and financing iss­ues. So far, 42 per cent and 34 per cent of the wes­tern and eastern DFCs, respectively, have been completed. These two corridors are expected to be fully commissioned by 2023. Plans for four more DFCs may take some time to materialise, given the constraints.

The DFCs are the largest project undertaken by the railways in recent history. Dedicated Freight Corridor Corporation of India Limited (DFCCIL) was set up and tasked by the Ministry of Rail­ways to build, maintain and operate the DFCs. This arrangement represents a major shift in the administration structure of rail freight in India. At present, IR is the developer, owner and regulator of freight infrastructure and operations.

The DFCs will lead to the decoupling of infrastructure and operations. On the DFC rou-tes, DFCCIL will act as the infrastructure manager and IR will function just as an operator, paying a track access charge for using the in­frastructure.

Potential for intra-rail competition

This new arrangement creates potential for competition due to the overlap between the IR network and DFC routes. A similar situation can be already seen with the Konkan Railway. Kon­kan Rail Corporation Limited (KRCL) runs a 756 km long track, which cuts down the distance between Kerala and Karnataka drastically. However, IR emerged as the biggest competitor to KRCL by not diverting freight trains via the Konkan line – the shortest route for many destinations in the South – for the simple reason that IR would have to then share revenues with KRCL as access charges. The charges on this route were also kept 40 per cent higher than IR rates, leading to customer reluctance. As a result, despite immen­se innovation and unique marketing efforts, Konkan Railway continues to incur losses. Recently, there have been calls for this line to be merged with the IR network.

To avoid a similar situation, IR has an ag­reement to transfer 70 per cent of its freight traffic on existing routes to the DFCs. A recent study estimated that IR would have to pay around Rs 120 billion per annum to DFFCIL in the first few years as track access charges. Considering that IR had a revenue surplus of only Rs 15.89 billion during 2019-20, this additional charge could place a counter productive financial burden on IR. This would hamper its ability to improve services in other parts of its network. Increased budgetary support could be a way out, but further burden on the exchequer is hard to justify, given the financial impact of Covid-19 on government finances.

Relooking at track access charges

At present, track access charges have been framed using a regulated asset base approach; which means that the infrastructure costs are passed on to IR. With the key criteria of providing a reasonable rate of return on the capital to the investor, the present track access charges are on the higher side.

Should some consideration be given to the financial sustainability of IR while framing these charges? This would likely lead to lower annual charges and a longer time horizon to pay back investors. However, when we consider that two-thirds of the rail revenue comes from the freight business, this would be a positive for improving the overall rail freight business. Considering that the objective of the DFCs was to improve freight loading and not just to create infrastructure on certain routes, such a move may be justified. Once again, the need for an independent rail regulator for setting access charges and tariffs is acutely clear.

Alternative long-term arrangements may be necessary

In the long run, the conflict of interest can be solved through a different management structure. DFCCIL and IR should come to an agreement to transfer assets to IR for maintenance and operation. Thus, for all practical purposes, DFC routes serve as additional lines on the same route, giving freedom to IR to use them as per their operational needs.

This would bring the question of how to pay back the investors in DFCCIL. IR can agree upon a fee that would provide a reasonable rate of return and an acceptable timeframe for repayment. The advantage of this would be that IR would be able to use DFCs in the most efficient way, leading to gr­ea­ter revenues. DFCCIL would remain only as an agency to construct future DFCs. The DFCs will usher in a new and exciting time for rail freight. However, many questions remain and DFCCIL, IR and investors will need to collaborate extensively to resolve these. The overall objective must be to increase the share of rail in freight transport in the country. This is essential for cost-effective logistics moveme­nt as well as for meeting climate goals by de­carbonising transport.

Promit Mookherjee,  Research Associate, Centre for Sustainable Mobility, TERI

Note: Promit Mookherjee was involved in TERI’s ongoing research study on “Strategies to Increase Railways’ Share in Freight Transport in India”

GET ACCESS TO OUR ARTICLES

Enter your email address