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Proposed freight corridor cost doubles

Proposed freight corridor cost doubles
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First Published: Mon, Jan 25 2010. 11 26 PM IST

In the pipeline: Freight trains at the Tughlakabad railway station in New Delhi. The project is expected to decongest existing railway lines, catalyse industrial investments of around Rs2.3 trillion a
In the pipeline: Freight trains at the Tughlakabad railway station in New Delhi. The project is expected to decongest existing railway lines, catalyse industrial investments of around Rs2.3 trillion a
Updated: Mon, Jan 25 2010. 11 26 PM IST
New Delhi: India’s ambitious effort to connect its busiest commercial centres with a dedicated rail network remains on paper five years after the project was announced, but its cost has more than doubled to Rs57,667 crore.
In the pipeline: Freight trains at the Tughlakabad railway station in New Delhi. The project is expected to decongest existing railway lines, catalyse industrial investments of around Rs2.3 trillion and create new jobs. Rajkumar/Mint
This detail is part of a draft business plan for the project submitted in a December board meeting of the Dedicated Freight Corridor Corp. of India Ltd (DFCCIL), and which has been reviewed by Mint.
DFCCIL is a government-owned company set up to build the network. The new figure of Rs57,667 crore is around Rs30,000 crore more than the earlier estimate.
A DFCCIL executive who did not want to be identified said the business plan with the new numbers has been forwarded to the Railway Board, the apex decision-making body of the Indian Railways.
The proposed freight corridor has two lines being constructed by Indian Railways to transport goods and will connect India’s largest port in Mumbai to Delhi through the western corridor (1,483km) and also link Dankuni in West Bengal with Ludhiana in Punjab through the eastern freight corridor (1,806km).
The project is expected to decongest existing railway lines, catalyse industrial investments of around Rs2.3 trillion and create new jobs along the rail route.
The government’s plan is to build industrial corridors along the freight lines.
The government has so far accepted an offer from Japan—of Rs17,700 crore in soft loans through the Japan International Cooperation Agency—for the western corridor. The two countries have already signed an agreement for a small component of this, while the main loan agreement is expected to be inked sometime in March. Indian Railways is negotiating with the World Bank and the Asian Development Bank for funding the eastern corridor.
The DFCCIL executive said the cost of the project had increased because of several factors, including the fact that the scope of the network had not been finalized when the earlier estimate was announced.
A government official familiar with how Indian Railways operates said that the increase in cost reflects how this organization works. In the case of two small construction tenders—the only ones that have been floated by DFC so far—the costs involved were as much as 40% higher than the estimates mentioned in tender documents, the official added. Mint couldn’t independently verify this claim.
This person added, asking that he not be identified, that the cost of the freight network could be even higher, at least Rs65,000 crore. “What happens by the time the project is finally completed?” he asked.
The DFCCIL executive cited said the cost of the project was not expected to rise further. “It doesn’t look like that. When we were making final estimates, lot of corrections were made.”
The business plan further estimates that the company’s rate of return on investment—from incremental traffic alone—could range from 8.97% to 13.97% based on varying projections of traffic.
The government official said the business plan was incomplete without details of the number of trains DFCCIL would be allowed to run on its tracks. The report doesn’t address the terms of the agreement between Indian Railways and DFCCIL, he added.
The Rs57,667 crore estimate includes interest costs, insurance and taxes.
The construction cost for the first version of the proposed project, where the eastern line terminated at Sonnagar in Bihar works out to Rs42,231 crore. The project has since been extended to Dankuni in West Bengal, current railway minister Mamata Banerjee’s home state. Lalu Prasad, her predecessor in the ministry is from Bihar.
According to Indian Railways, the project could cost around Rs49,624 crore in its current configuration. This estimate, however, excludes interest costs.
“If today they are saying Rs57,000 crore, I would say it would cost at least Rs75,000 crore by the time they are finished,” said Amrit Pandurangi, who heads the transport and infrastructure practice for consulting firm PricewaterhouseCoopers. “I’m sure if you conduct an analysis, you’ll find a variation of at least 30%, if not more, for publicly funded projects.”
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First Published: Mon, Jan 25 2010. 11 26 PM IST