Off track

Updated: Mar 28 2005, 05:30am hrs
With global crude prices galloping and the IEA forecasting dearer crude in the days ahead, bulk consumers such as Indian Railways (IR) need to review their fuel strategy. After all, it spends close to Rs 8,000 crore a year, or 17% of its operating expenses, on fuel to propel the wagons. Currently, this is equally split between diesel and electric traction. If engine procurement is anything to go by, this year the Railways reliance on diesel is definitely not on the decline it is procuring 30% more diesel engines than electric engines, in line with last years trend.

On the electric front, its future power procurement strategy is flawed. IR is planning to set up a 1,000 MW power plant, in a joint venture with NTPC in Nabinagar, Bihar, constituency of former Railways minister Nitish Kumar. Interestingly, the objective of locating it in Bihar is lost, since it is not a pit head station, with coal having to move some distance from the mine mouth to the power plant, thus adding to costs. If the plan is to sell it in the market and make money, it had best look at the health of the power sector before jumping into it. Despite being a bulk consumer, it is likely to end up paying a higher power rate than the retail consumer. This is quite the opposite of what happens in the developed oil sector, where it nets a discount.

What IR needs to do, instead, is leverage its position as a reliable round-the-clock bulk consumer and negotiate for long term supplies from generators across the country, in a load-defined distributed manner. Symbiotic relations can be struck with upcoming private generators, who are looking at ways to escape the payment problems of the power sector. Alternately, it can look at creating innovative financial structures in the freight business to finance its power bills. Dedicated freight corridors can be created in high-traffic areas and power generators compensated by way of recourse to revenues from such corridors. After all, the average speed of freight trains is a pathetic 23 km per hour and traffic in certain segments like the West-North line is bursting at the seams.