Dedicated Freight Corridor: Logistics Simplified ( Part - II) ..

Continued from Volume V, Issue No. 48…
Recommendations of the task force

The task force in its report recommended various models in existence for the dedicated freight corridor:
1. Vertically integrated structure: This model is followed in countries like China, Russia, Brazil, Mexico etc where railway systems are run either by state owned companies or privately owned regional companies. The integrated railways are run by the private sector on the basis of concessions or franchises.
2. The second structure in which the dominant user is integrated with infrastructure while incremental users have access for which they pay access charges. This model is followed in US wherein one vertically integrated freight railways uses the infrastructure of another entity. In Japan, the Japan Rail Freight Corporation runs as Govt undertaking on infrastructure owned by a private regional undertakings.
3. The third model in which the infrastructure is separated from the users but remains accessible to all under an access regime. The EU has adopted this model since 1991.This model ensures management independence of railway undertakings with no discrimination while sharing the infrastructure.
Map of proposed Dedicated Freight Corridor




The Railway Ministry initiative

Ministry of Railways have planned to construct a new Dedicated Freight Corridor (DFC) covering about 2762 route km (Eastern Corridor -1232 Km and Western Corridor -1469 Km) on two corridors, Eastern Corridor from Ludhiana to Sone Nagar and Western Corridor from Jawahar Lal Nehru Port Mumbai to Tughlakabad/Dadri along with interlinking of two corridors at Khurja. Upgradation of transportation technology, increase in productivity and reduction in unit transportation cost are the focus areas for the project. Based on the feasibility study conducted by RITES for Eastern and Western Corridors and their financial viability, the construction of dedicated freight corridors were approved “in principle” by CCEA in its meeting held on February 2, 2006 with the directions for expeditious finalization of modalities regarding resources and the Special Purpose Vehicle for implementation of the project.The total length of the dedicated freight corridor is 11,500 km and is expected to involve an investment of Rs 1,00,000 crore. While the western corridor will have a length of 1,469 km and seven feeder routes, the eastern corridor will have a track length of 1,232 km and 17 feeder routes. Both the western and eastern corridors will be connected between Dadri and Khurja to facilitate transfer from one corridor to the other.


About the SPV

A special purpose vehicle named Dedicated Freight Corridor Corporation of India Limited (DFC-CIL) has been formed. The SPV is registered as a company under the Companies Act 1956 and managed by a Board of Directors (BoD), which would include the Managing Director, four full time functional Directors. Chairman, Railway Board will be the ex-officio Chairman of the BoD. The first-time Managing Director and four full-time Directors will be appointed for a tenure of five years subject to an overall age limit of 65 years. One of the Government nominees to the Board of Directors will be from Ministry of Railways and the other from the Planning Commission. The independent Directors would be selected carefully from such fields as may be relevant for the SPV (academics, law, finance, human resource etc.) to bring fresh expertise and insights to the BoD.
The SPV will have a paid-up capital of Rs. 50 crores and authorized capital of Rs. 4000 crores, which can be increased subsequently as per future requirements. Initially the SPV will be constituted with 100% equity by Ministry of Railways. The equity in the SPV will be offered to PSUs/Government institutions in case they evince interest in future subject to retention of majority stake by Ministry of Railways.
The debt equity ratio will, however, not exceed 2:1.The funding offered by Government of Japan under Special Terms of Economic Partnership (STEP) being coordinated by JICA/JBIC should be utilized for the project. SPV would be fully empowered to take decisions in respect of project estimates, award of contracts, resource mobilization and hiring of staff.
The SPV will plan, construct, own and maintain the dedicated freight corridor under a Design, Build, Construct and Maintain and Transfer Concession to be given by Ministry of Railways for a period of thirty years after the start of commercial operations of the full corridor.
The concession may be extended further by mutual agreement. It will be responsible for movement of trains on its system. The SPV will not own or lease any rolling stock nor will it do any freight business directly with the clients. Actual train operation including provision of motive power would continue to be vested in the Indian Railways. The relationship between the Ministry of Railways and the SPV should be codified in a concession agreement.
Salient Features of the Project

The main features of the project are as follows:
• Both Eastern & Western Corridors will be made suitable for running of heavier trains of 25 tonne axle load. Maximum moving dimensions on the routes will be more liberal and comparable to world standards in order to permit heavier and longer trains.
• While Eastern Corridor will be electrified, the Western Corridor will operate on diesel traction in order to permit Double Stack Container operation.
• Bridges and fixed structure, which have long life, would be laid on this route for 30 tonne axle load. The loops provided on the route (DFC) should have length to accommodate double trains (1500 meter).
• Logistics Parks are proposed to be developed along the Dedicated Freight Corridor.
• The Eastern Corridor as approved by the Indian Railways network will also be developed to carry heavier traffic of coal and steel.
• The total length of feeder routes for Eastern Corridor will be about 3000 kilometers.
• The Western Corridor will start from Jawaharlal Nehru Port, New Mumbai and will be routed via Vadodara, Ahmedabad, Palanpur and Rewari to Tuglakabad and Dadri.
• The feeder routes of the Western Corridor connecting Ports of Gujarat will be upgraded. A feeder route from Rewari to Ludhiana via Hissar will also be developed to serve the States of Punjab and Haryana. This corridor will carry mostly container traffic.
• Both Eastern and Western Corridors will be connected between Dadri and Khurja.
• This 1469 kilometers long Corridor, fit for double stack container operation is estimated to cost Rs. 11,446 crores. Feeder routes on the existing Indian Railways network will also be developed for moving double stack container trains
• Total length of feeder routes for Western Corridor will be about 1500 kilometers.
(to be continued..)

Dedicated Freight Corridor: logistics simplified..

This article of mine is published in Observer Research Foundation Vol V Issue 48 13 -19 May 09

http://www.observerindia.com/cms/sites/orfonline/modules/newsbrief/NewsBriefDetail.html?cmaid=16274&mmacmaid=16276&volumeno=V&issueno=48

Introduction:

The Indian railway constitutes a critical component of India’s transport network. Generally it carries passengers and freight. It is cost effective and environment friendly. The Indian railways have 1.4 million employees and 64,000 kilometre-long network. Some inherent problems like capacity constraints and constraints in the freight segment have led to a significant shift from railways to road transport. However, the railways are poised for rapid growth in capacity expansion in recent future.

The high density eastern and western corridors are already saturated in terms of line capacity utilization. The economic growth of India has put a huge pressure on the network and increased congestion in these routes.

As freight is a major source of revenue to railways, there is a necessity of drawing a roadmap for the construction and operation of the dedicated freight corridors. The committee on infrastructure in its report proposed for a corporate entity which would provide the rail infrastructure, but would not engage in freight business, thus providing non discriminatory access on payment of haulage charges by train operators. The committee is of the view that it would help large scale private investment and competition in freight operations.
So, freight is the area where the Railways need to concentrate upon from the point of view of revenue. Around 55 per cent of the freight traffic is accounted for by coal, iron ore and steel. Since the revenue per-tonne-km is almost the same for most commodities, except iron ore and steel, this means the Railways need to look for new categories of freight (those being freighted by road) if they want additional revenues. This is where the role of Public-Private Partnership (PPP) comes in.

Role of private sector in railway transportation:

The government in its effort to efficiently manage the railways system has been proposing public private partnership (PPP) model. The PPP model aims at creating a system wherein the expertise of both the sectors can be exploited. The Railways need to involve the private sector in marketing for freight services, and to complete the last-mile in the supply chain.
As proposed by experts, hub-and-spoke model may be a good option wherein the Railways will carry the goods on the hubs, that is, from one station to the other; while the private sector transships the goods from the hub to the spoke, which is from the railway station to the customers’ godown/outlet. If the Railways use this model and offer attractive rates to transporters, it will incentivise them to divert goods from pure-road to road-cum-rail.

The Railways must increase their effort to enhance container train traffic. There are currently 13 private players, apart from the Railways’ subsidiary Container Corporation of India, who are running their own freight trains and who pay a track fee to the Railways. The Railways can explore the possibility of increasing track capacity for running more freight trains and taking more load per train through better design of wagons, softer and less investment-intensive methods like better signalling, de-bottlenecking, and, where feasible, by rearranging the priority for uneconomic passenger trains.
Experts are of the opinion that a long term strategy should be drawn so as to involve the private sector in creation of dedicated freight corridor, which, of course, is capital intensive. Traffic carried by Indian Railways has exhibited buoyant growth averaging 9% per annum in case of freight and 8% in case of passengers over the last five years. Ministry of Railways (MoR) has set itself an ambitious target of carrying 1100 million tones of freight and 8.4 billion originating passengers by the end of Eleventh Five Year Plan i.e 2011-12. It also plans to reposition its rail transport services competitively to expand its presence into non-traditional segments by offering innovative transport solutions, high quality of services in terms of safe and reliable delivery and transit times as also by adding other value –added logistics services.

The DFC Concept: Weighing the pros and cons:

Notwithstanding the importance of the Indian Railways in transportation network, it is marred with inefficiency and capacity constraints. IR runs sub-urban and other passengers at below cost, transport essential commodities at a loss, run branch lines that are not remunerative and is expected to provide increasing employment opportunities to the population. There should be different parameters to distinguish commercial and social activities. Dedicated Freight Corridor (DFC) presents a good opportunity to establish an independent organization and run this as commercial venture.

In recent times, railways have been losing their competitiveness to roads. Though it has a relative advantage in natural resources and intermediary good markets with large volume of movements, it certainly lacks agility in operation.

Through DFC, it will be possible to undertake periodic performance reviews and problem solving sessions with major clients to improve the service. According to Rakesh Mohan Committee Report, the Indian Railways was rated below roadways on almost all parameters like reliability, availability, price, time, connectivity, suitability, damages, information sharing, adaptability etc. All these factors signal that an independent organization is better equipped with to handle DFC than Railways.
With the abolition of import licensing and the gradual reduction in custom duties, Indian manufacturers have to compete with foreign manufacturers not only in foreign market but also in the domestic market. To remain competitive, the Indian industry has to keep its inventories down and produce just in time concept and all this can only be possible with a backing of highly efficient logistic chain. The dedicated freight corridor will address this problem in an efficient manner with a low cost approach. The need to have a separate organization which is not burdened with the task of balancing the conflicting objectives, would be in a much better position to follow a market savvy approach.

The project is capital intensive in nature and requires certain benchmark standards to run on commercial principles. The investment requirement as ascertained by the task force was Rs 22,500 crores. The task force suggested the assistance from the Japanese government through JICA (Japanese International Co operation Agency). The SPV can also help in raising loans from the market and the idea of running the track on a commercial basis could very well inspire confidence among investors.

Some of the stakeholders identified for this purpose are the port operators including port trusts, shipping and shipping related companies, coal, iron ore and steel companies such as CCL and SAIL and NMDC and power generation companies like NTPC.

Dedicated corridor for freight or passengers?

The existing infrastructure imposed significant technical constraints limiting the payload carrying capacity of freight trains. Axle Load permitted on the tracks is 20.3- 22.9 tonnes against 25 to 37.5 tonnes per axle carried by major freight carrying systems. The length of loops provided in yards and in stations is 686 metres, limiting the length of trains to 58 BOX ‘N’ wagons. Against this, heavy haul freight systems internationally carry more than 100 wagons, with the Australian system carrying over 300 wagons per train. The moving dimensions, which is the space envelope in which the locomotives, coaches or wagons have to be designed is restricted on the Indian railways.

The envelope in other countries is larger allowing use of wagons with higher cross-sectional area permitting increased payload in the same wagon. Payload to tare ratio i.e. the payload compared to empty weight of wagon is in the range of 4-7 internationally against 2.5 prevailing in India. The envelope cannot be increased as structures on the track like stations, platforms, roofs, bridges, tunnels, road over-bridges etc. have been constructed with clearances according to the current space envelope. The Railways may not be able to cope with the growth in container traffic of around 15% annually without double stack movement. Double stack container movement would not be possible due to the physical limitation imposed by the restrictive space envelope. Increasing clearances will mean large-scale investment in raising bridges, increasing width in platform areas, increasing height in platform areas, increasing height of electrical OHE, tunnel sizes etc.

One train in Australia clears the same payload as would require 6-7 trains in India. Thus the sectional capacity gets vitiated on the Indian Railways due to extra trains being run. Making the existing tracks fit for high axle load, increasing loop length and clearing physical impediments on existing structures would not only be very difficult but extremely costly, and a big challenge in built-up urban/semi-urban areas. A dedicated freight corridor free from the technical limitations enumerated above and fit for high axle load, longer trains and larger clearances can be constructed afresh with little extra investment compared to normal track construction.

A high-speed passenger corridor needs a higher level of technology to provide the necessary safeguards towards safety, and other systems including coaches, locos and signaling etc. The high-speed train system between Mumbai and Ahmedabad that was proposed in the past was estimated to cost around Rupees 70 crores per km. For the Delhi-Mumbai and Delhi-Howrah passenger corridors, a total distance of 2800 kms, the project cost would be around Rs 100,000 crores even at 50% of the earlier estimate. Against this the corresponding freight corridors are estimated to cost Rs 22500 crores. Given the magnitude of funds required for the passenger corridors, the project cannot be given priority over the freight corridors.

The dedicated freight corridor has to be preferred over high speed passenger corridor for the following reasons:
• The investment requirement to build passenger corridor is five times that required for freight corridor
• Simultaneously significantly heavy investments would be required to augment capacity on existing networks to cater to the freight business.
• Even after these investments physical limitations imposed by the restrictive space envelope would remain
Investment for the dedicated high-speed passenger corridors would have relatively lower returns on capital, which the country can ill-afford.


to be continued…

DDG: Is this the answer to peak power deficit in India?

DDG (Decentralized Distributed Generation) may be based on conventional and non conventional source of energy, may be a stand alone system or grid connected, Site specific (Rural or Urban).

India is facing acute power shortage and it is predicted by CEA that the situation may worsen in 2009-10 when peak deficit of some states may touch around 30%.This keeps the alarming bell ringing and India need to address these concerns as soon as possible.

Talking about the need of urban areas where Industrialization is growing at fast pace, the hunger for power keep growing at an alarming rate and the need for 24 x 7 power supply is a must to sustain the growth momentum. In the need of the hour, it is the rural segment which is affected badly, as if load shedding is to be made; the first area to go without power is jhuggi jhopdi areas in urban and the rural areas. The reasons are plenty, we can not afford for power cuts in urban areas as economic activity stops without power and the loss to overall growth of the country is very huge.

Now, the big question is that whether the DDG could make for the peaking shortage of urban areas. What would be the cost factor and where is the fuel resource for such type of systems. Can this type of system economically, financially and commercially viable. If the answer is yes, then what is stopping the private entrepreneurs to tap the area? Is there any policy which supports this type of activity? Is there any hurdles regarding the regulatory mechanism. If not then, why such systems are not coming up in a large numbers in India.

As it is now evident that everyone seems to be consensus to the point “Generate where required”. By this, lot of problems could be solved at one go. There will be virtually no technical losses in the system as the power is not to be transported to a large distance by wires. There will be less carbon foot print as the power will be generated by less polluting fuel such as gas and renewable sources. Grid connectivity will not be a problem as the power generated will be used locally and at time of need it can be supplied to the grid so s to help the grid functioning better.

So many advantages, so what is stopping us going forward? The huge cost factor and the private developers are demanding grants and subsidies from the government. Do they find the customers who are willing to take the power .If customers are willing to pay for the power, then these systems must be encouraged but who will guarantee the long term fuel supply .As these DDGs are planned to operate at gas based fuel and we are very much aware about the gas supply scenario of India, Due to want of the gas, many gas based power plants are running at a PLF of only 30 to 40%. The KG basin gas is a hope for the future prospectus but the problem is that the fertilizer lobby is so strong that they have the first right to use the gas and then comes large gas based power plants of CPSUs and the IPPs and then if any gas is available, the govt might think of allocating the remaining gas for DDG type of schemes.

So, the fuel is the main problem as of now. We may hope the situation to improve when the national power grid takes shape in India but that is also a distant dream right now.

Moreover we must remember that more than 1 lakh villages in India are still to be electrified and the policy makers are rightly pointed out for a possible solution with implementation of DDG systems as a stand alone system in rural areas where it is very difficult to lay the grid lines. Under the scheme of RGGVY and MNRE, several financing options are available to make the system viable. On the other hand, the private players are demanding same incentives to develop the model in urban areas as they are not willing to go to the rural areas and develop the same as they very well know that those areas are not commercially exploitable.


Some argue instead of focusing rural areas Govt may come up with some policies so as to mitigate the demand of urban areas first as this could help them save substantial power and power supply will be reliable and sustainable and peak deficit may be addressed in case of urban areas. The idea is good but then why urban areas .As we know that people in urban areas can pay more and they should be paying according to their use. The recent phenomenon at the power exchange suggests that the peak rate is hovering around at Rs 15 per unit. I think this could better trigger to the point that if they go with DDG with less space requirement, less water requirement and overall price of power will be less as it is also used for heating and cooling effect. The malls , office spaces and other loads if they can afford such type of power, they must be encouraged to go for DDG systems and DLF utility has already implemented the same in some of their buildings and they plan to implement it for their upcoming housing areas as well as market establishments.


Some experts argue in favour of having the DDG system only for rural areas where the requirement is small and the fuel resource is abundantly available locally. The technology must be developed so as to make the system reliable and financially viable.

In a recent round table conference organized by Infraline Energy, Mr Shahi , former secretary to MoP has suggested PPP model for DDG generation scheme. He has advocated for viability gap funding for the project where as the Govt would be ready to pay for a particular tariff which will be a pass on to the consumers and for the gap cost the generators must compete against each other to get the required benefit from the government.

Or can we think of a franchise kind of structure where in some players are selected by the government to establish the plant on a BOOT ( Build, own, operate and transfer scheme) basis.

Though Wartsila is strongly advocating of DDG system in urban areas there are very few takers to their argument but then the scope is very vast and if they can find the right customers who are willing to take that extra foot forward, it’s a better solution to go in for this type of systems as we very well know that India need power and it does not matter from where and how the power comes from like in 20-20 cricket, it does not matter the kind of risk or the shot selection of the players, what matters the most are the valuable boundaries.

What say!!!!!!!!!!!!!!