Rail freight corridor runs into funding snag

Rail freight corridor runs into funding snag
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First Published: Wed, Feb 25 2009. 11 44 PM IST
Updated: Wed, Feb 25 2009. 11 44 PM IST
New Delhi: The railway ministry is seeking Union cabinet approval for funding a portion of the Japanese-backed dedicated freight corridor (DFC), which, if it is green-lighted, would effectively commit India into buying Japanese rail equipment for the entire project.
Japan will fund the project only if India sources equipment valued at up to 30% of the Rs18,000 crore loan amount from Japanese vendors. Because the rest of the corridor will require similar equipment, it would tie the government to sourcing the balance equipment too from the Japanese on commercial terms.
The propriety of such a deal has been questioned by some other government departments ahead of the Union cabinet taking up the proposal, which pertains to a portion of the western leg of DFC, which stretches from Mumbai to Kolkata through Delhi, or the so-called East-West corridor. The railway ministry is seeking Rs6,000 crore, one-fourth of DFC’s revised cost.
“The finance (ministry) and the Planning Commission have stated their points of view on the proposal that has been sent to them. They are not in agreement with some elements of the plan,” said a railway official, who didn’t want to be named.
This official said the objections had to do with the manner in which the funding for the project was being structured. He refused to share more details.
Two other officials separately confirmed to Mint that other ministries had objections to the government accepting Japanese aid for the project because it could potentially tie it down to sourcing equipment supplies from that country.
A railway official handling the freight corridor project confirmed that problems pertaining to acquisition of technology had been discussed by the ministry with other government departments.
“There were some concerns about the equipment that would be bought from Japan for the project. But it is our view (of the railways) that any equipment bought from Japan—including signalling technology—can be synergized with the equipment that we will need to acquire further,” said this official, who did not want to be identified.
A New Delhi-based official at the Japan International Cooperation Agency (JICA), while declining to respond to the objections raised by some government departments, said the expectation is that “the project would go ahead as per the proposal put up by JICA”.
“It is progressing,” added the official, who declined to be identified.
Announced in 2005, DFC comprises two lines being constructed by the railways to transport goods. It envisages connecting Mumbai and Delhi through the western corridor and linking Sonnagar in Bihar with Ludhiana in Punjab through the eastern freight corridor. The project is expected to decongest existing railway lines.
Initially, Japan, through JICA, had agreed to fund the entire project. Last year it conveyed to the Indian government that it was only willing to fund the western leg of the project at Rs18,000 crore and that it would only ply electric locomotives. The railways, which had initially decided to do this leg only on diesel locomotives, revised its plans to accommodate JICA’s request. Subsequently, it revised even these plans to restrict its investment to a part of the western leg of the project—from Vadodara in Gujarat to Rewari in Haryana.
“The problem with tied loans is that this kind of an arrangement comes with buying equipment at high cost; bilateral debt is not the solution to solving problems pertaining to infrastructure,” said Akhileshwar Sahay, president of government and multilateral advisory services at infrastructure consultancy Feedback Ventures.
Because the entire western corridor will require an investment of Rs24,000 crore, the railways will now have to fund the balance sum of Rs6,000 crore—which requires the cabinet’s approval.
“If the costs have gone up, we naturally have to go to the cabinet for approval,” said Railway Board chairman S.S. Khurana. He, however, refused to say when the proposal would be taken up by the cabinet.
Rahul Chandran contributed to this story.
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First Published: Wed, Feb 25 2009. 11 44 PM IST