Financing Issues of Dedicated Freight Corridor Focus on the Mumbai-Delhi Corridor Introduction: by U.S.Jha IRTS M.Phil. PGPPM

Financing Issues of Dedicated Freight Corridor

Focus on the Mumbai-Delhi Corridor

Introduction:

The Indian Railways has embarked of the project of building dedicated rail corridors for freight traffic. Initially the first phase of Dedicated Freight Corridors (DFCs) would be along the western and eastern corridors to eventually be extended to the Golden Quadrilateral and the two diagonals connecting the 4 metros – Delhi, Mumbai, Kolkata and Chennai. These rail routes add up to total route-length of 10,122 kms out of the total broad gauge length of 45,662 kms. It is the central nervous system of the IR carrying more than 55% of the passenger and freight traffic. These routes are extremely congested with line capacity utilization ranging from115% to 150% offering limited opportunities to add any additional trains. It is anticipated that the DFCs would help the Railways to meet the biggest challenge of heavy congestion prevailing along the entire route of the Golden Quadrilateral. The western corridor linking Mumbai to Delhi would provide an opportunity to capture the growing freight traffic between ports of western India and hinterland of north and northwestern India. It is the availability of alternate sources of finance through project finance, which has encouraged Indian Railways to embark on this ambitious project of Dedicated Freight Corridor (DFC) between Mumbai and Delhi. However, early finalization of the project taking a decision of the source of the capital, mode of traction, track alignment and role of foreign funds is critical to the development and functioning of the project. The Indian Railways (IR) has to act quickly and in a firm manner, upon which the sustainability and success of the project depends. Any delay in taking a decisions on this account will not only delay the implementation of the project leading to manifold increase of the project cost, but also the emerging traffic will settle for some alternative mode of transportation, leaving little for the IR to serve. This would have tremendous repercussions on the Indian economy as a whole.

Background:

The Indian Railways (IR) has had a long history of serving the country as a natural monopoly. Till the 1990s it was relatively secure in this position. Unable to cope with the competition from other modes of transportation, IR then found itself on the brink of financial collapse. In a remarkable turnaround however, IR was subsequently able to stem the downward slide and actually enter an upward growth phase from 2002-3. This phase was characterized by unprecedented growth of over 8% from 2002-3 to 2005-6. The concurrent increase in activity in the economy has been credited with up to 70% of this growth. This high growth period laid the foundation for massive turnaround plans involving track renewals, gauge conversion, modernization of bridges, upgradation of suburban routes and modernization of stations and train terminals, construction of metro rail in major cities, increasing the manufacture of rolling stock etc. The required investment for all these activities has been estimated at over Rs. 300,000 crores by 2015.

In order to achieve the grand target of 1,200 million tons set for 2012, IR needed to focus on High Axle Load Freight Corridors on western and eastern routes. The Indian Economy with its current strong fundamentals is poised to grow on the same trajectory at an average of 7 to 10% in the coming future. Transport requirements being essentially in the nature of a derived demand, are estimated to increase with elasticity of 1.25 vis-à-vis GDP growth by 10 to 12% in the medium and long term range. Riding on the wave of this success, IR has already improved its financials significantly, primarily from higher freight volumes without substantial investment in infrastructure of higher axle loads, etc. The increase in railway freight traffic has been 8 to 11%. Freight is identified the clear leader of growth for the Indian Railways. In the absence of any additional capacity, such traffic has either not been served or has moved to some other mode of transportation. IR has not been able to reap the benefits of the national growth. Due to the heavy capital expenditure required for developing any major project in this area, IR had not taken any such project on hand. However, after IR has tasted success in some other Public-Private projects (such as the recent Pipavav Railway and Kutch Railway), it has explored the availability of appropriate sources of finance to undertake the task of construction of the Mumbai – Delhi and Howrah- Amritsar dedicated freight corridors.

Origin of the project:

In April 2005, India and Japan mooted the discussions for dedicated rail freight corridors. RITES were entrusted with the feasibility study of both eastern and western corridors. In May 2005, Committee on Infrastructure (COI) constituted a Task Force, which was charged to prepare a concept paper on the Dedicated Freight Corridor projects, including suggestions for the organizational structure for planning, financing, construction and operation of these corridors. It recommended the setting up of a Special Purpose Vehicle (SPV) for the construction and operation of the DFCs. Accordingly; the Dedicated Freight Corridor Corporation of India Limited (DFCCIL) was incorporated under Companies Act in October 2006. Subsequently, RITES submitted the PETS Report based on which the project was approved at a cost of Rs. 28,181 Crore.

Formation of the SPV- DFCCIL:

This SPV was set up with a paid up capital of Rs. 50 crores and authorized capital of Rs. 400 crores. The authorized capital was to be increased subsequently as per future requirements. To begin with 100% ownership was with the Government of India (GoI) and it has planned to undertake the development of two DFC estimated at total cost estimated at Rs. 28,000 crores as per RITES study for both the western and eastern routes with a Debt-Equity Ration of 2:1. For the project financing purpose, following major sources were identified:

• Internal generation of the Ministry of Railways
• Budgetary support from Government of India (that is subsidized grants and even guarantees)
• Foreign Loans from multi-/bi- lateral agencies - World Bank, ADB, JICA etc.
• Market borrowings
• Public-Private Partnerships

The main task of DFCCIL is planning, construction and maintenance of the DFC whereas the train operation would continue to be done by IR. It would try and provide different customer services to attract more traffic to the fold of the railways. By obtaining some concession agreements, it would maintain proper relationships with Ministry of Railways. The basic aim is to execute the DFC project through a mix of Engineering Procurement & Construction (EPC) and Public Private Partnership (PPP). The basic objectives of the DFCCIL are:

• Increase in IR’s share of the freight traffic
• Improve and upgrade passenger train operations on existing networks by segregating passenger and freight operations
• Reduction in unit cost of operation which will lead to decline in rail tariffs for customers
• Achieve greater satisfaction by improving reliability and sustainability, reduction in transit time
• Identify and develop new corridors based on traffic needs

Function of DFCCIL:

The role and function of DFCCIL has been defined as under:

• To plan, construct, own and maintain DFC
• To facilitate financial arrangement through concession agreements with Ministry of Railways for 30 years after the start of commercial operations of the full corridor. This concession may be further extended by mutual agreement.
• It would be responsible for movement of freight trains on its system
• It may create project specific SPVs or joint ventures for individual projects.

To start with DFCCIL has taken certain decisions, which would determine the nature of the project. It has decided in favor of heavier axle load and trailing load, which is a revolutionary idea and is likely to improve productivity manifold. The decision has been taken for 32.5-ton axle load (against the present 18 ton loads), 12 ton/meter trailing load and 15000-ton train load (against the present 7500 tons). Thus almost two full trains would be running in place of one train. The adoption of a larger schedule of dimensions would help in increasing the size of the wagon with pay load (load capacity) and lower tare weight (weight of wagon). Maximum level of gradient has been accepted at 1 in 200 with a permitted curvature of 2.5 degrees with 700-meter radius for the speed of 100 kmph. It would be a double line section with stations at about 50 kms and junction stations at 200-300 kms with automatic signaling. All bridges, flyover and formation is to be designed for above loading and would be fit for double stack containers.

DFCCIL has also decided for the development of Logistics Park and state of art terminals near Dadri, Rewari, Jaipur, Palanpur, Ahmedabad, Vadodara and Navi Mumbai. For this it has contemplated to set up sub SPVs to set logistic park on PPP mode. It has also decided for developing commodity specific terminals and value added services as per the emerging trend of demand. It may be noted that under DFC for the first time the segregation of freight and passenger services has been contemplated and this would provide competitive edge to trade and industry through improved service quality.

Present Operational Constraints on the western side:

The existing lines between Mumbai-Delhi have the following operational constraints:

• Heavy volume of passenger and freight traffic, leading to over-utilization and over-saturation of line capacity;
• Retarded movement of freight trains as there is predominance of passenger carrying trains which have overriding priority,
• Considerable speed differential between different type of passenger trains, which further restrict movement of freight trains;
• The mixed pattern of traffic, with passenger and freight trains sharing a common set of tracks, which seriously impinges on safety of passenger operations;
• Congested and heavily worked junctions and terminals resulting in passage problems and heavy detention to freight services, and

• Ultimately, the route’s inability to meet the demands of future growth in traffic.

Although some measures like signaling improvements, deployment of higher capacity locos and wagons, traction changes and selective augmentations of certain sections have been undertaken in recent years, these have marginal effect on the volume of traffic carried by the Railways, and these were not been adequate to offer long-term solutions in relation to the anticipated growth of traffic.

Objectives of DFC – Western corridor:

In order to address the above problems, IR proposed to construct a DFC between Mumbai and Delhi. Some of the important objectives are:

• Free freight movement leading to a quantum leap in the performance of freight services through the absorption of modern transportation technology.
• Reduction in the unit cost of transportation by speeding up freight train operations and achieving higher productivity through better utilization of railway assets, reduction in inventory costs and achieving greater customer satisfaction.
• Creating rail infrastructure capability to move a substantially higher level of freight traffic, adequate to meet the requirements for the next 50 years or more.
• Off-loading the existing rail corridor of a substantial part of the present freight traffic, thereby releasing capacity for augmenting passenger services, decongesting busy terminals and junction stations and resulting in improved safety in passenger train operations.
• Introduction of high end technology in freight operations, resulting in higher axle loads, higher standard moving dimensions (SMD) and track loading density (TLD), improved pay load/tare weight ratio and substantially improved traffic throughput by way of introduction of heavy–haul freight services and double-stack container trains.
• Introduction of timetabled freight services and guaranteed transit times.
• Improving the railways’ share in the total land transportation of goods in the country and enhancing customer satisfaction.

The main commodities moving on the rail corridor are containers, food grains, fertilizers, POL, salt, coal, iron and steel and de-oil cakes. The product mix varies from section to section. For instance, whereas on the Jasai-Panvel section, containers constitute almost the only traffic, on Palwal-Tughlakabad section, these constitute only about 20% of the total trains. Commodities entering the corridor at various locations en route are mainly coal, iron and steel, fertilizers, POL, cement, food grains, etc. In some cases, such traffic enters and exits the corridor after traveling for a short distance.

Container traffic handled at the existing ports in the western region in 2003-04, amounted to 2.7 million TEUs, of which 24% moved to/from hinterland destinations by rail. This traffic is expected to grow rapidly reaching 15.5 million TEUs in 2021-22. The rail share of the traffic is also expected to increase to about 38% with increased quality of service. The level of nearly 10 container trains each way in 2003-04 is thus expected to increase to more than 70 trains each way by 2021-22.

Although many suggestions of the RITES report were not accepted, by and large, it formed the basis of all future discussions and deliberations. Some of the important issues are:

Route Alternatives of Western corridor:

The Mumbai-Delhi rail link has two distinct route alignments, vis:

1. Mumbai-Vadodara-Ratlam-Kota-Mathura-Tughlakabad (1410 km); and
2. Mumbai-Vadodara-Ahmedabad-Mehasana-Palanpur-Phulera-Rewari-Delhi (1425 km).

The 437 km Mumbai-Vadodara segment is common to both the routes.

The major comparative features were: -

Features	Via Ratlam-Kota	Via Ahmedabad- Palanpur
Distance	1447 kms	1493 kms
Construction route	1415 kms	1461 kms
Bridges	26	9
Road crossing	142	142
Road over bridge	168 (new)	135 (new) & 20 (rebuild)
Level crossing	597	579
Additional land requirement	2572 ha	3275 ha
Point of connection	8	10
Diversion	Not calculated	271 kms
Cost	Rs. 10095.6 crores	Rs. 11445.6 crores
Per km cost	Not calculated	Rs. 7.8 crores

Besides the above differences, there are different point or junction stations where traffic from other lines joins. In the Ratlam-Kota section, 8 junction stations where traffic merges into and remerges from the main stream are: -

1. Godhra: Ahmedabad-Anand-Godhra.
2. Nagda: Itarsi-Bhopal-Ujjain-Nagda and Bina-Guna-Maksi- Nagda.
3. Kota: Bina-Guna-Ruthiyai-Kota.
4. Gurla: Nimach-Chittaurgarh-Gurla.
5. Sawai Madhopur: Jaipur-Sawai Madhopur.
6. Bayana: Tundla-Yamuna Bridge (Agra)-Bayana.
7. Bharatpur: Tundla-Agra Fort-Bharatpur and Jaipur-Bandikui- Bharatpur.
8. Mathura Junction: Bhopal-Jhansi-Agra Cant-Mathura.

In Ahmedabad Palanpur section there are 7 different points en route where traffic merges into and de-merges from the main stream. These are:

1. Ahmedabad: Kandla and Mundra Ports and Gandhidham area via Viramgam; traffic from Rajkot and Bhavnagar Divisions via Surendranagar and Viramgam.

2. Mehasana: With the conversion of Viramgam-Mehasana section to BG, all north-bound traffic earlier moving via Ahmedabad now moves via Mehasana. In particular Mundra and Pipavav port traffic to the north moves through this point.
3. Palanpur: Through Gandhidham-Palanpur section north-bound traffic from Kandla and Mundra Ports and from Gandhidham area moving through this considerably shorter route.
4. Marwar : Jodhpur-Marwar via Luni and Udaipur-Marwar via Mavli.
5. Ajmer: Chittorgarh-Ajmer, under conversion from MG to BG.
6. Phulera: Rewari-Jaipur-Phulera (BG); Jodhpur-Merta Road-Phulera (BG); and Delhi-Rewari-Ringus-Phulera (MG) converge at this point.
7. Rewari: The Bandikui-Rewari (BG), Ringus-Rewari (MG), Hissar- Rewari (BG) and Sadulpur-Rewari (MG) the lines meet the 83 km Delhi-Rewari suburban section (BG and MG) at this point.

Principal Commodities in this route include containers from J N Port in Mumbai and Kandla, Mundra and Pipavav ports in Gujarat; salt from Gandhidham area as well as from Rajkot, Bhavnagar and Ahmedabad divisions; foodgrains; fertilizers; POL; cement; iron and steel and de-oiled cakes.

To cater to the inevitable growth in respect of Exim container traffic to and from the ports of (JNPT) Mumbai, Kandla, Mundra, Pipavav and Hazira, the report therefore, recommends a Dedicated Freight Corridor between J N Port and Tughlakabad/Dadri with the track structure fit for running with 25 ton axle load, but with bridges and fixed structures (which have long life) fit for 30 ton axle load to enable the running of double stack container trains.

RITES in its study noted that during 2003-4 there were 3900 thousand TEU container traffic which is likely to grow to 27000 thousand TEU or 30000 thousand TEU by 2021-22. Out of this 68% traffic was handled by the ports of the western region and by 2021-22 even if this comes down to 61% this translates to 17000 to 18000 thousand TEU.

The anticipated scenario in respect of individual ports in the region, in keeping with their likely handling capacities, has been assessed as follows:

Anticipated Container Handling Capacity at Western Region Ports

(In thousand TEUs)

Port	2003-4	2006-7	2011-12	2016-17	2021-22
J N port	22269	2980	4945	6700	7500
Mumbai port	197	300	800	1200	1500
Kandla	170	250	500	750	1000
Mundra	48	750	1250	1700	2000
Pipava	25	450	750	1125	1500
Hazira	-	-	800	1500	2000
TOTAL	2709	4730	9045	12975	15500

In this situation when cumulative growth of container traffic is anticipated at 13 percent per annum over 2003-4 by the Ministry of Shipping, availability of a dedicated freight corridor with its attendant benefits of faster and safer transit would act as a major catalyst in shifting of long lead container traffic from road to rail borne transportation. It was believed that in case the DFC takes the Ratlam-Kota alignment, traffic from Kandla, Mundra and Pipavav Ports for Delhi area will continue to move over the existing route via Palanpur-Phulera-Rewari and by the newly converted route via Bhildi-Samdari- Jodhpur-Bikaner-Bathinda or Jodhpur-Phulera-Rewari-Hissar to the states of Haryana, Punjab, J&K and Himachal Pradesh. However, in case the route alignment of the DFC is along Ahmedabad-Palanpur, a substantial part of this traffic (mainly for and via Delhi area) would move over the DFC. Nevertheless, container traffic between J.N. Port/Mumbai Port/Hazira Port on the one hand and Delhi/other northern states on the other would move on the DFC irrespective of its route alignment. Thus, the extent of container traffic carried on the DFC would be considerably higher if its route alignment is via Ahmedabad-Palanpur.

Further, principal commodities on the two routes are as follows:

1. J N Port-Ratlam-Tughlakabad alignment: Coal, POL, fertilizers, salt, cement and empty wagons in up direction and foodgrains, coal, empty tank wagons in down direction.
2. J N Port-Vadodara-Palanpur-Rewari alignment: POL, fertilizer, salt in up direction and Foodgrains and cement in down direction.

All these traffic are by and large likely to increase by 10 percent. In future it was anticipated that on the Ratlam alignment, traffic allocation to the DFC would be of the magnitude of 70% to 75% of the total traffic, whereas for the Palanpur–Rewari alignment, traffic allocation would be 82% in the J N Port to Delhi direction. However, the Railways need to initiate measures to attract piecemeal traffic in its fold through logistic providers. The railways also need to develop Logistics Parks. such parks could also act as receiving, warehousing and local distribution points for food grain, steel, cement and such other bulk commodities, before they are retailed and trucked by road to smaller consumers in the urban areas. A proliferation in Container terminals number will contribute to the maximization of Railway’s share in this potential segment of multi-modal transport. Development of auto rack/RO-RO (Roll On and Roll Off trains for road vehicle) parks, introduction of time tabled freight trains, and realistic tariff system can also help in attracting more traffic.

The railways also need to develop Yard and Container depots at Tughlakabad, Dadri and J N port and all other feeder routes from which traffic for DFC are likely to originate/ terminate. Keeping this entire factor we can conclude that

• Traffic moving on the DFC will be higher on the Ahmedabad-Palanpur alignment.
• The alignment will better serve the ports of Mundra, Kandla and Pipavav in Gujarat and other traffic nodes on Ahmedabad, Rajkot and Bhavnagar Divisions of WR.
• It will provide substantial relief to the Vadodara-Ratlam-Kota-Delhi segment of the existing route by taking away a considerable chunk of traffic between Mumbai and Delhi.

For the reasons given above, the route alignment via Ahmedabad-Palanpur has been found preferable and the Ministry of Railway have decided in favour of the above route.

The salient features of the project were then broadly firmed up as follows:

A dedicated freight corridor exclusively for running freight trains at a maximum permissible speed of 100 Kmph

1. Primarily Double Line corridor (except where Single Line is justified on traffic considerations) running parallel to the existing corridors, so as to maximize the usage of available railway land; and transfer trains from the existing corridor to the DFC and vice versa through predetermined Junction arrangement, equipped with grade separators to facilitate smooth transfer of trains between the two networks
2. The track sub structure like formation, bridges etc are to be fit for 32.5-ton axle load but the track super structure like track, sleepers, ballast etc are to be fit for 25-ton axle load
3. The loop length on the proposed corridor to be 1500 meters long to facilitate running of long haul trains up to 1500 meter. Due to this the train would increase from present 4000 tons to 15,000 tons.
4. Provision of grade separators, i.e., ROB/RUBs at important Level Crossing Gates to avoid any detention to either road or rail traffic
5. Crossing stations on the Double Line to be provided at an average distance of 40 Km and 10 Km on the Single Line stretch
6. Higher Schedule of Dimensions (SODs) and Maximum Moving Dimensions (MMDs) in order to run wider stock, double stack containers and newly designed wagons so as to have improved payload to tare ratio
7. Infrastructure provided should be fit for heavy/long haul operation up to trailing load of 15000 tons
8. Advanced Signaling System facilitating better and efficient operation of trains. There would be automatic signaling with 2 K.M. spacing.
9. Against the IR’s 4.265 m height in DFC it would be 7.1 m for Western DFC and 5.1 m for Eastern DFC. In width it would be 3660 mm against IR’s 3200 mm. This would facilitate double stack container running.

Diesel vs. Electric Debate:

A diesel locomotive An Electric Locomotive

Initially DFCCIL has taken a conscious decision to run the Mumbai Delhi corridor on diesel traction. However this has become a bone of contention between IR and Japan International Cooperation Agency (JICA) which has proposed to finance the project. JICA has given preliminary indications that it is going to finance the project only when the track is electrified. Consequently the above decision was revised and it was decided that this would be electrified.

There has been a lot of debate on the issue of diesel locomotive versus electric locomotive. Today electric locomotives usually use less energy (per unit of transportation work) than diesel power. Electricity is clean and non-polluting at the point of use. It is also a lot easier to maintain and electric locomotive than a diesel locomotive (which has a diesel motor in addition to an electric traction motor). Since using various types of fuel such as natural gas or coal can generate electric power, trains can be powered by a wide variety of fuels other than petroleum. Electricity generation is a lot cheaper at a centralized power plant due to economies of scale. Still another advantage is that one may overload an electric motor for a short period of time and get much more than the rated power out of it. The justifications for Electrification in Indian Railways are:

• Modernization
• Energy efficiency
• Depleting oil reserve
• Savings in foreign exchange as about 70% of diesel is imported
• Marginally capital intensive but operationally much cheaper
• Economical in running and operating costs
• Enables higher speed and improves throughput
• Eco-friendly

In comparison, a diesel locomotive, which is basically diesel-electric locomotive, the diesel motor just isn't very economical at generating electricity since it's often operating at part loads as well as idling. And it costs to haul the diesel-generator set all over the rail lines. A diesel locomotive cannot be overloaded for a short period of time and it can't ever supply any more power than the diesel motor can put out.

All these benefits must be evaluated against the high cost of installing the overhead wires and the substations used to supply electric power to feed these wires with electricity. If electric power fails (including the railway's power system and overhead wires) trains cease to operate. These grounds favoring electrification are countered by the IR position that electrification is not merely ‘marginally’ capital intensive but is ‘highly’ capital intensive. Some past experience in IR show that there is a difference between the projected and actual Rate of Return (RoR) on electrical traction routes with some having negative RoRs. For example, on the Ernakulam-Trivandrum route the present RoR is (-) 29%. The power to feed the electric locomotives is drawn from the Nallalam diesel fed power plant. The CAG’s Report 9 of 2000 commented on how the for the Delhi-Ambala route the projected RoR was 14.5% as against the actual RoR of (-) 10.25%. As per Railway Board’s 1996 guidelines electrification achieves a break even level if there is traffic of 49.72 Gross Million Tons per route kilometer per annum. In the DFC sections, especially in the initial years the projected traffic is not going to cross this level. Thus the benefits of rail electrification have to be weighed against the cost. Whatever the debate of electric vs. diesel would be now it is certain that Western DFC is going to be on electrical traction.

Role of Foreign Funding and its conditionality:

As per the RITES study the total cost of Mumbai Delhi DFC was slated at Rs. 11445.59 crores with the following break-up:

Items Cost	Rs. In Crores
Civil	9740.94
Electrical	62.11
Mechanical	150.00
Signal & Telecommunication	1492.55
TOTAL	11445.59

In the background of these cost projections, IR was in search of a funding agency to finance the project. The project funding and scope was to be finalized by March 2008. JICA has shown interest in the project and conducted their own Detailed Project Report. Their estimate varied from the RITES estimate by a very huge margin, while RITES has pegged the cost to Rs. 28,000 crores for the Western and Eastern corridors of the DFC; the JICA report put it at Rs. 54,000 crores. The prime reasons for the variation are:

• RITES recommended electrification of only the Eastern corridor whereas JICA insisted for electrification of both corridors.
• IR is also insisting on diesel traction for the western corridor since they plan to use double stack containers on the western corridor. As per JICA the double stack containers can also be used on electric traction as that technology has been tested internationally. However, this is also bound to increase the cost of the project.
• JICA has also insisted on construction of Inland Container Depot at Gurgaon near Delhi and included the cost of the locomotives, while as per IR these costs should not form part of the DFC project.

The foreign funding is seen to not only bring in its own financial as well as technical conditionality. Technologies have undergone a sea change in all spheres of asset capability, maintenance, and monitoring and operational strategies. Technology processes need to be obsolescence proof in the foreseeable future and this calls for a forward-looking approach. Apart from this, the funds may also be tagged with other conditions both technical and otherwise which would stipulate that the contracts and works should be awarded to some specific group of contractors, whether they are reasonably priced or not. This would undoubtedly have an adverse effect not only on the project development and maintenance authorities but it also stifles the development of local capabilities to handle these contracted works. They may also come with conditions enforcing the deputation of certain officers or consultants. Thus the project funding may be done more from perspective of maximizing the benefit to the donor rather than the benefits to the project itself. The linkages with the local economy and local strengths may be weak or even absent. In addition the funds are granted only when they serve the national interest of the donor country. For India to accept such funding, it has to take a clear look at those interests and check to what extent those interests are against India’s own interests. In addition the high inflation in India needs to be factored in while agreeing on the terms of the finance being received so that the effective interest rate is not too high. Therefore, such funding with conditionality may not be the most effective way of project funding.

Analysis:

Flyvbjerg, Holm, & Buhl (2006) in an international analysis of 210 projects in 14 countries found huge overestimations of traffic in transport projects. They found the problem more acute in the case of rail projects compared to road projects. In their study of over 30 years, they found that forecasts have not become any more reliable over this period and found the major cause of inaccuracy in forecasts to be political causes. They go on to suggest that the only way in which accurate forecasts can be made is by introducing greater transparency, accountability and use of better newer forecasting techniques.

The lessons of that study are particularly relevant to this project. It may not be that the traffic forecasts which may be as flawed here, unlike the other projects they have studied but the choice of the technology, both that which is preferred by the IR side and that which is being proposed as the only alternative by JICA and costs of each of those sets of options. The financial projections in the case of these two sets of technology are likely to be very different and would undoubtedly impact the viability of the project as a whole. The technology to be used in this project seems linked to the funding pattern with the foreign funding agency dictating the technology to be used and in turn the technology choice may rule out certain funding and financing patterns. For instance there has been a move in the current pattern to drastically reduce the PPP element due to the way the project finance is shaping up. If project finance is to be broken down into the three phases of project structure, risk analysis and lastly financial closing, then it would seem that the project structure itself is yet to be formalized in this case.

Conclusions:

As per schedule the project was originally slated to be completed by 2011-12 which has been now been revised to 2015-16 and have a life of 30 years. The major benefits are held out to be:

• Reduction in freight transit times by half
• Time tabled freight trains and guaranteed transit
• Total logistics solution including value added services through logistics parks
• Special wagon handling facilities for bulk cement/ liquid cargo etc.
• Movement of special stock like Over Dimensional Consignment (ODC)
• Higher Maximum Moving Dimension (MMD) to attract new cargo such as automobiles etc.
• Longer trailing load for increased volume of lighter cargo
• Terminals at strategic locations to operate as a hub for different products

The Cabinet Committee on Economic Affairs has already approved the DFC project and it is to be completed within the 11^th Five Year Plan. For these benefits to be reaped within this time-period there are the following challenges to be overcome:

• The creation of DFCCIL as the SPV has been a positive step but it needs to act more proactively and insist on tight project completion schedules. If foreign funds are not forthcoming then the company may have to seek raising the funds from the market. All project components should require that international bids to be called for with clear and transparent Terms and Conditions.
• Aggressive marketing should be done for increasing traffic and providing committed service as a part of the deal and here lies the mantra of the future success of the DFC. This includes the marketing of related projects such as the Delhi-Mumbai Infrastructure Corridor, which would be co-terminus with the proposed western freight corridor. This is not merely a railway or transport project but one, which have a significant impact on the viability of the freight corridor.
• The huge challenge of Land acquisition as the western corridor requires a total of 5270 ha needs to be acquired including Wild Life Sanctuaries, National Parks and Reserve Forests. The area is spread over 5 States covering a number of villages falling on the alignment route, a massive Relief and Rehabilitation work is going to be a big challenge. On 11^th January 2008, the GoI promulgated an ordinance to amend the Railway Act, 1989 for land acquisition, which is now going to be help in this acquisition of land. However, as has been seen from the case of the SEZs, unless there is a suitable groundwork for relief and rehabilitation, this factor alone can bring the project to a grinding halt. Its significance should not be underplayed.
• Finally, and most critically, the challenge of the resolution of the stalemate between JICA and IR which is now being discussed at the highest political and diplomatic levels in both countries.

These factors and challenges will determine not only the fate of the Western corridor or that of the First Phase of the DFC but will have its impact on the future of not only other DFCs in India and elsewhere in the developing world but also have an effect on determining the size and scope of project financing for other infrastructure projects as well. This aspect of the significance of this project should not be lost sight of in the flurry of activity going on at present.

References:

Brealey, R.A., Cooper I.A. & Habib M.A.: Using Project Finance to Fund Infrastructure Investments, Journal of Applied Corporate Finance

DFCCIL website: http://dfccil.org accessed regularly up to 30^th January, 2008

Eichengreen Barry (1996): Financing Infrastructure in Developing Countries: Lessons from the Railway Age in Infrastructure Delivery: Private Initiative and the Public Good, Economic Development Institute of the World Bank accessed on 29^th January, 2008 at:

http://books.google.com/books?hl=en&lr=&id=TMFHKGUmOG8C&oi=fnd&pg=PA107&dq=railways+infrastructure+finance+project&ots=gdJ9FPzrnc&sig=B0RS8kIxr8QqjUf4ssElMupwiNQ#PPA105,M1

Fight, Andrew (2006): Introduction to Profile Finance, Butterworth-Heinemann, Burlington, MA, USA

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(Copyrighted. Although various information used in writing this article is based on various sources including railways’ different reports, some of which are mentioned above, the comment made on these are personal and may not be the view of Indian Railways.)