September 20, 2012

The growing pains of India’s freight corridors

Written by  Raghav Thakur, Correspondent
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BY December, India will award the first civil engineering contract, worth approximately Rs 100bn ($US 1.8bn), to build 2200 track-km for implementing the 3338km Dedicated Freight Corridors (DFCs) on the country's eastern and western flanks. Of the 9701 hectares of land required for the project, 7217 hectares (74%) has been acquired.

The first tranche of loans, comprising $US 975m from the World Bank and $US 5.2bn from the Japan International Cooperation Agency (JICA), has been received and the agreement for the remaining amount will be signed by 2013. India's ambitious rail infrastructure project, it seems, is about to take off.

But on the flip side, the DFCs have been plagued by delays and cost overruns. In the five years since its conception, the total project cost has surged from Rs 420bn as initially proposed. After a huge cost-cutting exercise, the budget has now been pegged at Rs 960bn.

As part of the cost-cutting measures, the project is now being implemented on the basis of a traffic projection for the 10 years from the date of completion. The overall project design has not been amended, but there have been changes in scope - for example, the number of loops has been reduced from four to just two. The Dedicated Freight Corridor Company (DFCC) insists that anything cut at this stage can still be implemented in the second phase.

Other compromises have also been made. Owing to political uncertainties and procedural and bureaucratic wrangles over project implementation, the private sector has been reluctant to invest. Project funding has therefore come only from the World Bank and JICA.

With these constraints on the project budget, India's ability to leverage the project to extract the best rates for services offered has now become limited. Loans from the World Bank and JICA have come at low interest rates, but analysts say the terms and conditions attached to these agreements are heavily loaded.

Such apprehensions are not unfounded. For the JICA-funded Western DFC (1499km), just two joint ventures have been shortlisted for the civil works contracts, and Japanese firms Mitsui and Sotitz are the lead partners of both consortia.

On the World Bank-funded Eastern DFC, the work looks likely to be more evenly split, with Russian, Spanish, Chinese, American and French firms in the fray. But even here concerns have been raised about the limited number of bidders - only 13 companies have been shortlisted, far fewer than expected.

The other issue concerns the slow progress in developing connecting lines along the Delhi - Mumbai Industrial Corridor (DMIC) - which plans to develop seven major industrial hubs along a 150km stretch either side of the Western DFC. Five years after the plan was conceived, Indian Railways has not completed surveys on proposals to construct three new lines totaling 191km. Progress on the links between the DFCs and ports has also been frustratingly slow due to a paucity of funds.

Notwithstanding all this, the outlook for India's quest to create a dedicated freight network actually looks fairly positive. The country's existing 64,000km network is extremely congested and there is near unanimity among politicians that the DFC project must move forward.

By the end of March 2013, civil works are scheduled to begin on two stretches: the 350km section from Khurja to Kanpur on the Eastern Corridor and the 650km-long Rewari - Palampur section of the Western Corridor. Financial tenders for the Western Corridor will be opened on October 30. Technical bids for the Eastern Corridor are presently being evaluated by the World Bank.

With infrastructure designed for 32.5-tonne axleloads, and 15,000-tonne trains, the DFCs will provide a step-change in freight capacity and bring much-needed relief to some of the most congested parts of India's railway network.

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