New Delhi: India’s top economic policy approving body has cleared the railways’ showpiece dedicated freight corridor, or DFC, project despite the absence of a business plan—the very grounds on which the clearance of the project was rejected three times earlier.
The cabinet committee on economic affairs, or CCEA, approved the project on 21 February, but the government didn’t disclose this. The approval paved the way for railway minister Lalu Prasad to claim in the rail budget presented on Tuesday that work on the project would commence in 2008-09.
Four government officials independently confirmed the fact that on 21 February, CCEA had approved the project. None of them wished to be identified.
The 2,700km DFC project was conceived in 2005 and envisaged as a way to ease traffic on some of India’s busiest freight routes running through 12 states, while simultaneously creating investment opportunities in an industrial corridor that would come up alongside.
The corridor will connect New Delhi in the north of the country to Mumbai in the west and Kolkata in the east. These two routes account for 60% of the freight transported by the Indian Railways, which had initially estimated that the investment cost of the project would be Rs28,000 crore.
However, this estimate was challenged by the finance ministry, the Planning Commission, the country’s apex planning body, and the Japan International Cooperation Agency (Jica), an investment arm of the Japanese government that wished to invest in the project.
While Jica estimated the project cost at Rs48,000 crore, the finance ministry maintained that the railways had underestimated the project cost, but did not put forth an estimate of its own. In an earlier interview with Mint, a finance ministry official said that the railways had not included several elements, such as bulk terminals, in its estimates.
Confusion over the exact cost was one of the main reasons for the project not getting the go-ahead from CCEA. However, CCEA revisited its decision last week and decided to give the project the go-ahead, even though there was no clarity on either the estimate of the cost of the project or the source of financing.
As a result, a week after approval, a member of the Railway Board, the apex decision-making authority of the Indian Railways said, on condition of anonymity, that the agency is still evaluating several financing options including private investment in some parts of the project through the build-operate-transfer model where private firms develop infrastructure and manage it for some time.
“The eastern corridor will be financed through a mix of internal resources, gross budgetary support as well as funding from multilateral agencies such as the World Bank,” the member added.
The official said work on the project would now start off with the Rs1,300 crore allocation made in last year’s rail budget. “I don’t think we will need any more funds. I doubt if we will even finish those funds by next year,” he added.
Mint had reported on 17 December that the railway ministry was exploring a model that would invite private investment in return for a share of freight revenues.
A Planning Commission official, who spoke on condition of anonymity, said he wasn’t aware of any financing plan being submitted by the railway ministry: “I am still in the dark. We haven’t seen any plan. They haven’t given anything to us.”
However, railway ministry officials maintained that they were in discussions with the Planning Commission.
“The Planning Commission and the Railway Board are discussing how this (getting private investment for the project) can be done,” said a railway ministry official who did not wish to be identified.
Meanwhile, an official with the Dedicated Freight Corridor Corp. of India Ltd, the company (or special purpose vehicle) that has been created for the project, said it was yet to appoint a consultant for preparing the business plan for the project.
“We are still in the process of selecting the consultant. It will take some time,” said this official who did not wish to be identified.
The project, when first announced in December 2005, was seen as a significant achievement for both Prasad as well as the ruling United Progressive Alliance (UPA) government at the Centre.
“The railways has managed to get the approval (for this project) only because the UPA government will lose face if it was not approved now (with only a year to go before the scheduled general election). The project was first mooted by the Prime Minister himself and so, when the railways stood its ground and demanded the approval for the project, the cabinet (CCEA) had to give in,” said a person familiar with the project who did not wish to be identified.
Analysts welcomed the decision to start work on the project. “Railways has generated a cash surplus of Rs25,000 crore this year. This shows that it has the necessary muscle to pull this off,” said Akhileshwar Sahay, president of the infrastructure advisory division for New Delhi-based project management firm Feedback Ventures.