Rail Budget 2016: Indian Railways saves big on fuel cost, especially electricity

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New Delhi | Published: February 26, 2016 12:41:13 AM

The Indian Railways managed to cut down on its fuel expenses, which contributed nearly one-third to the total savings of Rs 8,720 from the Budget estimate...

The Indian Railways  managed to cut down on its fuel expenses, which contributed nearly one-third to the total savings of Rs 8,720 from the Budget estimate as the public transporter entered into several long-term and less expensive contracts to procure electricity.

The total fuel-related savings between budget estimate and revised estimates for FY 16 amounted Rs 3,475 crore. While the electric portion contributed Rs 1,566 crore to the saving, the savings on diesel came in at Rs 1,927 crore.

“We significantly reduced the cost of power procured for traction by signing long term agreements, brought down inventory carrying costs and launched austerity drives,” Railways minister Suresh Prabhu said in his budget speech.

Indian Railways has long been a bulk procurer of electricity from different states but the state-owned distribution companies have been charging the national transporter at industrial rates. This has meant that Railways has been paying, in some case, nearly double of electricity rates commercially available in the market, thus inflating its cost.

However, for the first time last year, Railways decided to procure electricity through competitive route in a bid to drive down its electricity cost. Railways entered into a contract with Ratnagiri Gas and Power to procure nearly 500 MW at below Rs 5 per unit, nearly 40% less the rates charged by Maharashtra discoms.

“I had promised annualized savings of Rs. 3,000 crore, which is about 30% of the total traction supply cost, to be achieved by the third year but we are likely to attain the target in the second year itself,” Prabhu said. He elaborated by saying that power procurement contracts already signed and implemented would translate into an annualized saving of Rs 1,300 crore, which will be augmented by already initiated action on long-term contracts amounting to savings of Rs 1,700 crore during the coming year, taking the total to Rs. 3,000 crore.

Indian Railways has also been proactive in getting the Central Electricity Regulatory Authority (CERC) to confirm the previously ambiguous status of ‘deemed distribution licensee’. This, along with declaration in recently announced tariff policy, declares Railways as a deemed distribution licensee. This would translate into Railways being able to secure and use cheaper commercial power throughout the country without the states levying any cross subsidy surcharge. “For the first time, IR has leveraged provisions of the Electricity Act to procure power directly at competitive rates, using its status as Deemed Distribution Licensee,” Prabhu said.

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