We are no longer conservative about the PPP model

The Indian Railways is faced with tasks it finds difficult to measure up to, while the attempts, albeit feeble, to involve private funds and enterprise for growth and modernisation are yet to bear fruit.

The Indian Railways is faced with tasks it finds difficult to measure up to, while the attempts, albeit feeble, to involve private funds and enterprise for growth and modernisation are yet to bear fruit. The Railway finance commissioner Vijaya Kanth answers a few queries on the plans to put Railway finance back on track in an interaction with FE?s KG Narendranath and Rajat Arora. Excerpts:

Why is the Railways rapidly losing the business of goods traffic to other means of transport?

Freight loading depends on how the economy performs. We can carry more freight but for that the economy has to pick up. We have adequate number of wagons and can cater to the increased demand (if the economy picks up). We couldn?t meet the target of 1,025 million tonnes (mt) for 2012-13 and saw a shortfall of 15 mt because the economy slowed down (the target for this year is 1,047 mt). We aren?t losing traffic to the road sector in case of most bulk commodities. Some cement traffic did shift to roads but has since come back (to the Railways). In the case of many goods, it simply doesn?t suit the producer to use roads as the quantity is very high. The freight moved by roads is more of the unorganised sector.

But that leads you to impose a disproportionate burden on industries like cement, steel and coal which have no option but to use Railways for transportation. This creates a cost spiral and hurts the economy?

We cannot increase the freight for commodities like fertilisers and foodgrains randomly as we are constrained by the government policy to avoid inflating the costs of these goods. Last year when a surcharge was levied on freight we spared foodgrains from that impost, forgoing revenue of R1,000 crore. The major source of freight revenue for the Railways is coal (with around 40% share). That said, we aren?t doing that badly on the freight front, having entered the 1 billion (freight loading) club, which previously consisted of the US, China and Russia only. The loading picked up in March. The special freight incentive schemes too are helping in increasing the traffic, although there is still a lag in use of our containers by user-sectors like automobiles. Even if you provide incentives and discounts, the industry might not feel confident in your capacity to deliver, if your finances are not in good shape. That is why we have focused on fiscal consolidation in the 2013-14 budget.

Our operating ratio in 2012-13 was 88.8%; this year it is projected to be slightly better at 87.8%, and the idea is to reduce the ratio to below 80% by the end of the 12th Plan. We are keen that freight volumes grow fast enough to generate enough revenue for our asset replenishment and capital investment needs. The fuel adjustment component in freight (implemented from April 2013) doesn?t amount to a hike as it merely neutralises the impact (on us) of any increase in fuel prices. There is still going to be a cross-subsidisation of R25,000 crore of the passenger segment by freight earnings this fiscal.

We are also losing money due to different pricing of commodities?items for domestic consumption get discounts as compared to those meant for exports but there are instances of misuse of this policy as was recently noticed in case of iron ore exporters. But we have made a beginning and we expect to garner R6,500 crore from the fare rationalisation announced in January.

Do you have the capacity to meet the increasing demand for imported coal transport?

Although we have limited throughput capacity at present, we have managed this (rising demand for imported coal transport). Users might have to stagger their coal imports if they want to avoid traffic bottlenecks; if the imports are bunched together, it would indeed stress us.

Your gross revenue has remained at around 1.2% of GDP over the last 10 years whereas the potential was much higher. More than three-fourths of the revenue receipts are used for meeting wage, pension and fuel bills. What are you going to do about this?

The Depreciation Reserve Fund (DRF) and Development Fund (DF) are financed through our internal generation. So, the more the internal generation, the more we provide for these two funds. Last year we had initially estimated to earmark R9,500 crore (for the DRF) and then the roll-back of fares happened and the earnings consequently came down, forcing us to cut down on allocation to this fund by R2,500 crore. But we did provide adequately for the DF last year (R9,984 crore) which is meant for modernisation.

How confident are you about the fiscal consolidation effort initiated a few months ago helping you in realising the budget goals for 2013-14 and bolstering the future funds flow for new investments?

In 2012-13 our finances improved thanks to the focus on fiscal consolidation. If we had increased fares by 5% every year, we would have accumulated about R1 lakh crore in 10 years and would have solved many of the problems including depletion of the funds you have referred to. Alas, we could not do that and, as a result, our modernisation plan suffered, but safety hasn?t been compromised.

One source of revenue is budgetary support on which you pay a concessional interest. How has this stream been?

Last year we paid a dividend (interest paid on capital at charge) of R5,340 crore to the government and for this year we have budgeted R6,250 crore. As gross budgetary support, we got R26,000 crore for 2013-14 including the allocation for the dedicated freight corridor (DFC), where a lot of spending is required for land acquisition, etc. In fact, we had requested the finance ministry to give funds separately for the DFC, which would now take away R7,000 crore from the GBS. In the 12th Plan period, we should be getting R1.94 lakh crore as GBS and in that the requirement of DFC would be R20,000 crore. With these, our plans for doubling of lines, laying new lines and gauge conversion might suffer a bit.

What are the liabilities you are going to meet out of the Debt Service Fund (DSF)?

It was created because we realised that we have to start servicing our JICA (Japan International Cooperation Agency) and World Bank debts. We also have to be ready to meet the liabilities to arise from the Seventh Pay Commission. The DSF is a committed fund and has been approved by the finance ministry. The aim is to set apart roughly 20% from our internal generation for this fund. To start with, we have put over R4,000 crore in the DSF this year.

Revenue can be enhanced only through tariff rationalisation. What would be the proposed Tariff Authority?s mandate?

The proposal to set up the authority is under inter-ministerial consultations. The views of the law ministry and the Planning Commission are expected on how to structure the authority and what functions are to be assigned to it. But it should be a statutory body consisting of experienced government servants and economists. Maybe it could begin as an advisory body and be strengthened later. It could define the threshold below which the tariffs can?t go.

Which are the areas where you think PPP model is desirable and would work?

World-class stations, optical fibre cables network, high-speed corridors and dedicated freight corridors are among areas identified for PPP projects. This year we will mobilise R6,000 crore through the PPP model (the target for the whole of the 12th Plan is much higher at R1 lakh crore). Attracting private investment is a daunting task but we are building the model with states and PSUs which are investing in railway infrastructure. Station development and land monetisation have PPP elements. We are serious about utilising PPP potential. In port connectivity projects and the doubling of lines, (private) investor interest can be stimulated. These models would be on a revenue-sharing basis with the Railways contributing land and other infrastructure.

There is a need for equitable deployment of railway facilities and services across states. Political patronage has allegedly led to uneven use of resources?

Such allegations are bound to be there in a country as vast as ours. We are doing our best to ensure that all regions of the country benefit from rail connectivity. States such as Andhra Pradesh and Karnataka have deposited money with us for implementing PPP projects. Haryana and Chhattisgarh have also come forward to design and implement PPP projects. The ?participative policy? we have formulated lists out various PPP models, but its vigorous implementation might take some time. We are also open to FDI in the PPP segment, although the FIPB scrutiny would be required. There has to be risk sharing between the government (Railways and PSUs) and the private investors, even as the revenue model has to be attractive for the latter. We have been rather conservative about PPPs but we are indeed opening up. We are giving priority to states which are ready to share 50% of the cost of a project or would provide land free of cost. Of course, there are states which are not in a position to do that and we are keen that all states benefit from the PPP initiatives.

Isn?t there a need to dispense with the cash-based system and formally adopt accrual accounting?

We are a public utility and are not in the business of making profits. But there is a well-recognised need to revamp the accounting practices. Much of our accounting is already accrual-based. We are working on accounting reforms and the aim is to follow the government accounting standards. We have a separate cell working on this shift and pilot projects are under way. Accrual accounting is the norm for reporting of government finances globally and would indeed help in efficient management of resources.

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First published on: 21-05-2013 at 00:02 IST