Title - Railways seeks to curb autonomy of subsidiary’s freight corridor

Indian Railways and the Dedicated Freight Corridor Corp. of India Ltd (DFCCIL) can’t agree on how much autonomy the latter will have on the dedicated freight corridor (DFC).

The railways wants the corridor under its control, while DFCCIL wants autonomy. The concession agreement between DFCCIL and Indian Railways is currently being studied by an inter-ministerial panel. DFCCIL is a subsidiary of Indian Railways established as a special purpose vehicle to construct the 3,278km-long corridors that received cabinet approval in 2006.

The provisions of the concession agreement are being finalized and these won’t allow DFC to operate at arm’s length or provide for access to qualified rail users, said at least two senior government officials, both of whom didn’t want to be named. “In other words, the present stipulations will not allow the dedicated freight corridor to seek business from private parties,” said one of the officials.

A concession agreement is typically a contract between the government and a company, permitting the latter to operate a particular business within the former’s jurisdiction.

In the case of the corridor, it is, in effect, the codification of a working arrangement between DFCCIL and the railways on the arrangements that allow the company to build and operate the freight network.

Conceived in 2005, DFC will connect the busiest freight lanes from Mumbai to Delhi in the west and Ludhiana (Punjab) to Dankuni (West Bengal) in the east. The route is proposed to be flanked by a multi-billion-dollar industrial corridor spanning several states.

The officials said the concession agreement in the works runs counter to how the cabinet had visualized the project in 2006. The cabinet had approved to set up the body at “arm’s length” from the railways, “provide non-discriminatory access to qualified rail users” and “have an independent revenue stream”.

Autonomy will allow the company to tap other sources of equity, at a time when the railways is cash-strapped. It works as an incentive for the railways to reduce cost of construction or operations, it will be unable to sell any spare capacity and would, therefore, lead to a “suboptimal utilization of infrastructure resources”, said a government official.

Another official said the current design goes against the objective of maximizing shareholder wealth, with DFCCIL being forced to maintain a zero per cent return on equity.

A senior railway ministry official rejected this contention.

“The dedicated freight corridor was set up to garner that part of the business which the railways was unable to service because of capacity constraints. If they go out looking for more business, it will jeopardize the interests of the railways itself,” this official said.

These concerns follow a demand for more autonomy from the railways. On 4 July 2011, Mint had first reported that the agency had been demanding more autonomy from the government, saying its ability to execute the enormous project could otherwise be undermined. The issue had cropped up during successive meetings to finalize bid documents for DFCCIL in June 2011, Mint reported.

While the eastern corridor is being funded with a loan from the World Bank, the Japan International Co-operation Agency is funding the western corridor.

The project is expected to decongest existing railway lines, catalyze industrial investments of around Rs.2.3 trillion and create new jobs along the rail route.

In 2010, allegations of misappropriation of funds at DFCCIL led to the ouster of then managing director V.K. Kaul. In May last year, the Central Bureau of Investigation registered a case on the basis of internal vigilance reports and started investigating the case.

“DFC was never envisaged as a competitor to the railways,” said R. Sivadasan, a former financial commissioner of the Railway Board, adding that it was created to speed up the laying of a freight-only network as opposed to the current system where freight and passenger trains run on the same set of tracks.

rahul.c@livemint.com

http://www.livemint.com/2012/08/16215427/Railways-seeks-to-curb-autonom.html?atype=tp