The cost for transportation of iron ore by the railways may come down by up to 14% if the rail ministry pays heed to its steel counterpart’s persistent demand. The freight reduction would be a welcome move for the steel and iron ore industry, but might cause a strain to the revenues of the railways, often called the lifeline of the nation.
Acting upon the repeated plea of the steel industry, the steel ministry has been urging the Suresh Prabhu-led ministry to change the freight class of iron ore and bracket it within the same class (145) as that of other raw material like coal, limestone, dolomite and manganese ore.
Iron ore is presently classified as freight class 165, same as that of steel. The steel industry argued that since iron ore is a raw material, it should be brought under freight class 145 and not put in the same class as that of steel which is essentially a finished product.
“If this demand of steel ministry is accepted by the railways, the benefit that would accrue is to the tune of 13.8% less freight charge for transportation of iron ore by the railways,” said a steel ministry source. The steel ministry had discussed the issue at least thrice since August last year at the Railway Board level, but nothing concrete has come out so far. In 2015-16, India’s iron ore production stood at 135 MT.
The difference in the cost of transportation between freight class 245 and freight class 265 hovers between R28 per tonne and R490 a tonne. Freight rates go up with an increase in kilometre. The gap also widens as the
distance goes up.
If approved, this would be the second relief extended to the iron ore industry in the last seven months. In May, the railway ministry abolished the dual freight policy rates for iron ore. Earlier, it used to charge separately for transportation of iron ore meant for exports and domestic consumption.
Railways plays a major role in the country’s transport market. In order to attract more customers to use railways for transportation, the ministry has initiated a major rationalisation of freight policies and also introduced computerised system to register demands for wagons and other steps to enhance efficiency and transparency in freight operations.