No fear of cartelisation by Japanese companies

Jan 16 2014, 02:57 IST
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SummaryWe were apprehensive that there would be a cartelisation of Japanese companies as there were only 4-5 Japanese players coming forward for the contracts

After facing hiccups in the award of contracts for the Western Freight Corridor, the Dedicated Freight Corridor Corporation of India Limited (DFCCIL) has now expedited the whole process. RK Gupta, managing director of DFCCIL, talks to Rajat Arora about the funding of the 3,300 km Eastern and Western Railway Corridor projects and the terms and condidtions of the Japanese tied loan.

There have been apprehensions about the Special Terms for Economic Partnership (STEP) loan from Japan International Cooperation Agency (JICA). Are they justified?

The 1,483-km long Western Railway Freight Corridor is the first project in India to get a STEP loan of 677 billion yen from Japan. JICA has various types of loan products and every loan product has got certain conditionality and different interest rates. We wanted a long-term loan. Delhi Metro has a long-term loan which is untied. But our loan requirement was more than Delhi Metro’s. Our loan period is 40 years (including a

10-year moratorium) and the interest rate is 0.2% while Delhi Metro serves a 1.4% rate.

Before committing the loan, the Japanese prepared project reports for both, the Eastern and the Western Corridors. Although we already had a report by RITES, they wanted to be sure for themselves. So, they studied both the Corridors and finally went ahead with the Western one. The construction cost for the Eastern Corridor is R29,000 crore (excluding the 540-km long

Sonnagar-Dankuni stretch) and the cost for the Western one is R38,000 crore. This does not include the soft costs (taxes, interest, duties, insurance and administrative cost). They went ahead with the Western Corridor because of their interest in the Delhi Mumbai Industrial Corridor. They could have also taken up the Eastern Corridor but they wanted to concentrate their resources on one project, which also entailed construction of industrial hubs and mega cities.

What are the loan conditions

of JICA?

JICA is funding the entire eligible portion. Theloan it has extended is a tied one, which means that in all contracts, the lead partner has to be from Japan and that 30% of the procurement is to be made from Japanese companies. There’s a flexibility in that any Indian Joint Venture (JV) in which a Japanese firm has 10% stake will be treated as a Japanese company. But in the railway sector, there are no such JVs. Any country would have imposed such conditions for giving loans at such cheap interest rates.

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